Several sources of income may be recognized at any bank. They may be classified roughly as follows:

1. Income from loans and discounts.

2. Profit from exchange or remittances.

3. Charges for collections.

4. Miscellaneous service charges.

Of these sources of income the one which is chiefly interesting to the banker is the first named, the receipts from loans and discounts. The income from these sources is ordinarily referred to as "interest" or "discount," the term "interest" referring to the amount paid by the makers of straight notes, the term "discount;" to the charge made for anticipating the maturity of the obligation which has been made for a named amount due on a specified date. It is clear, however, that the banker has always open to him the choice whether to confine his funds to lending or discounting the paper of customers who come direct to the bank, or of using it in what is called the open market - that is to say, of buying or discounting paper left with him or made, by persons who are not his customers. The ap-portionment of funds between these two fields is often-times difficult, but, for reasons presently to be stated, every banker has to consider it with some care. Turning attention first of all to the rate to be charged upon loans and discounts made in business carried on direct with the customers of the bank, we may recognize that there is in every community what may be called a going rate of interest. This is the outcome of the supply of and demand for capital and corresponds to the community's judgment of what capital or "money" is worth at any given time. This rate may be high or low, according to prevailing business conditions. Thus, for instance, in some Oriental countries at the present time, the borrower does not feel that he is being badly treated if he is called upon to pay 2 per cent per month, or 24 per cent per annum, for a loan secured by real-estate mortgage. In some parts of the United States to-day the rate of 10 to 12 per cent per annum on such security is perhaps not too much, while elsewhere 5 or 6 per cent is normal. The variations in such charges, as has been said, depends upon the adjustment of supply of and demand for capital; but they are also influenced by the question of risk, being high where the experience shows that losses are large, and low where losses are small. So also in the case of loans on commodities or securities, rates vary much between different communities in accordance with the relative supply of and demand for capital in those different places, while in the several places themselves there is always a variation between types of loans which involve high risk and those which involve relatively small risk. Inasmuch as it is difficult to foresee the future, a fact which means that there is always a larger risk element in long-term obligations than in short-term obligations, it is customary to regard long-term obligations as prop-erly burdened with a higher rate than short-term. Accordingly, it may be said that the banker is confronted with a general level of interest rates which cannot be altered very much by him, but which depends upon comparison of demand for and supply of capital. On this level he finds a variety of uses in which his funds may be applied, and as between those he naturally asks a higher figure for advances which are long-term or risky or uncertain, while he is able to reduce his rate on those loans which are short-term, secured, and liquid. The variation in rates at any given time is in large measure determined by these considerations.