Bills of exchange bought and sold on the market are classified primarily according to whether the parties are bankers or merchants. A banker's bill is an order drawn by one bank on another to pay a specified sum of money. The drawee bank is usually a correspondent carrying a balance previously deposited by the drawer. The usance of the bill may be either sight or time. As a banker's sight bill is drawn on a bank and is also payable on demand, it possesses the features of an ordinary check and is frequently known by that name. It is in every respect a negotiable instrument, and is usually payable to the order of a party. This sight draft, or check, is used when a bank sells foreign exchange. As an illustration, a person in New York, wishing to send �100 sterling to London, purchases this amount of foreign exchange from his bank, which generally gives him a draft drawn against its balance with a British correspondent. The purchaser then forwards the draft by mail to the payee, who receives the money on presenting the instrument to the drawee bank in London. In large transactions where quick communication is necessary, or in time of war when international mail service is uncertain, the cable transfer is used. As it is an order given by a bank to its correspondent to pay an amount of money on demand, the cable transfer is simply a form of banker's check. The two forms of exchange differ in that the cable transfer is forwarded over cable or wireless by the selling bank directly to the payee, while the check is given by the bank to the purchaser, who himself undertakes the responsibility of transmitting it. Furthermore, the cable transfer is payable only to a specified party and is thus nonnegotiaLie, while the check is usually drawn to order and is therefore transferable.

Bankers' bills drawn on a time b sis state that payment will be made on a certain date or a number of days after sight. These time bills are further grouped according to whether the maturity is over thirty days. If less, they are called short bills; if over, they are termed long bills. Drafts of the latter type usually have a maturity of sixty or ninety days, and seldom more than one hundred and twenty.

Bankers' bills may also be classified according to the purpose for which they are drawn. As indicated above, a bank in the course of its business creates foreign-exchange bills to cover shipment of goods, reimbursing of freight charges, meeting of insurance premiums, forwarding of remittances, and paying of tourists' expenses. Of a different nature are those bills drawn in order to lend funds in a foreign money market. These advances are described as loan bills when supported by collateral, and are termed finance bills when based only on pure credit.

Trade bills are instruments, the parties to which are merchants. These bills are classified, in general, according to time and purpose. Demand bills can be drawn only by firms with extensive foreign business, but greater use is made of time drafts. These, in turn, are either long or short, depending upon whether their maturity is more or less than thirty days. As to purpose, bills drawn by commercial houses follow a classification quite different from that of bankers' bills. Drafts which arise from the reimbursement of services cannot very well be accompanied by any documents representing property which could serve as collateral. Such bills are described as clean or unsecured, and so their value depends entirely upon the credit standing of the drawer and also the acceptor. This group also includes all bills from which documents have been detached. Of greater importance in foreign exchange are drafts collateraled by certificates or documents evidencing the ownership of some form of property, and which therefore are called documentary, or secured bills. Secured bills may be protected by stocks and bonds which have been ordered by foreign investors and are surrendered to them upon their honoring the accompanying bills of exchange.

All documentary drafts are based on the shipment of merchandise. The shipping documents thus attached to the bills are known as the "commercial set" and include bills of lading, insurance-policy certificate, commercial invoice, and several miscellaneous certifi-cates of minor importance.

Possession of the documents, especially the bills of lading, is necessary before the importer is able to obtain the merchandise. If his credit is insufficient or if the merchandise is not readily marketable, the documents are surrendered only upon full payment of the drafts by the purchaser. If, on the other hand, his standing is satisfactory or if the goods are staples, as cotton or wheat, which can be sold readily, the documents are delivered upon the acceptance of the drafts by the importer or by his bank.

In summary, the various forms of foreign exchange may be grouped as follows:

Classification of Forms of Foreign Exchange