174. Commercial Long Bills

Drafts drawn at from thirty days' to six months' sight upon foreign buyers of merchandise or upon banks abroad designated by them. Exchange of this kind is usually accompanied by bill of lading (receipt from the railroad or steamship line showing that the merchandise has been shipped), invoice of the goods, and often by insurance certificate showing where and for how much they have been insured.

Drafts of this kind drawn against shipments of cotton, corn and wheat, make up the bulk of the commercial foreign exchange handled in the New York exchange market. Where the drafts are drawn on a very good house abroad or on a bank, the bill of lading is deliverable upon "acceptance" of the draft by the parties on whom it is drawn. Where the drawee's standing is less well known or where the merchandise is perishable, documents are deliverable only on actual payment of the draft under discount. In the case of a draft marked "documents for acceptance," therefore, the party abroad which has bought the goods can get them out of the ship as soon as it - or the bank which represents it - has "accepted" the draft. Where the bill of lading is deliverable only on "payment" the consignee has to pay the draft (less a discount for the unexpired time it has to run) before he can get hold of the bill of lading to get the goods off the ship. "Acceptance bills" are, therefore, discountable; "payment" bills, rebatable at the current rate for loans. The rate for loans in the London market always ruling lower than the discount rate, bills for payment drawn against perishable goods which must be paid under rebate as soon as the goods arrive, command a better rate of exchange than even the best bills where documents are to be handed over to the consignee on acceptance. Differently expressed, the idea is that a higher rate of exchange is commanded by a grain "payment" bill than by a cotton "acceptance" bill, because in the discounting process in London less pounds sterling will be taken off the face of the grain bill than off the cotton bill.

Guaranty Trust Company Of New York.

Exchange for

£....................................................Stg. New York,............................................................191....

Sixty days after Sight of this First of Exchange (second of the same tenor and date not paid) pay to the order of

Sterling value received, which charge with or without further advice to account of

Guaranty Trust Company of New York,

To

Guaranty Trust Company of New York,

No....................................

London

Manager

Documentary exchange drawn by reliable parties is a fairly safe kind of exchange in which to deal, the buyer being protected by the bill of lading which is endorsed over to him. As long as the buyer of the exchange or his agent abroad retain the bill of lading, they are perfectly safe; it is in the case of acceptance bills, therefore, where the documents pass out of possession as soon as the drawee accepts the draft, that the element of risk comes in. For which reason the greatest care is exercised not only as to the maker of the bill, but as to the drawee as well, documents never being surrendered to the latter unless his standing is absolutely satisfactory.