176. Clean Commercial Bills

Bills drawn by commercial houses in one country on houses in other countries, at anywhere from thirty days' to six months' sight and unaccompanied by documents.

Of all classes of exchange this is about the most risky in which to deal, for which reason bills of this class can be had at lower rates than almost any other kind. The banker buying a bill of this kind has absolutely no security except the standing of the firms concerned. The actual shipments, payment for which is represented by the drafts, may have been made months before, or they may not have been made at all - about that the banker buying the bills knows nothing. When he buys clean commercial bills he does so absolutely on the standing of the drawer and the drawee. A good many foreign exchange bankers make it a point never to buy this class of bill at all.

177. Drafts Drawn Against Securities

Out of international trading in securities there originates an enormous volume of foreign exchange business. A banker in New York, for instance, sells a block of bonds to a firm in London and draws upon the firm in London for the purchase price converted into pounds sterling at the prevailing rate. To this draft are attached the securities, the whole being then sold in the open market. Exchange of this class is, of course, about the safest to buy that there is. The buyer of the draft gets the bonds as collateral and does not give them up until the draft is paid on the other side.

Sales of stocks as well as of bonds furnish a large amount of security-bills. "Buy for us 100 shares of Union Pacific preferred and draw on us for the amount due," comes a cable from a house in London to a house in New York. The order is executed, the stock bought, and a draft for the amount expended drawn upon the house abroad which sent over the order. Here again the stock itself is attached to the exchange, insuring for it a quick sale in the exchange market. A form of bill to the purchase of which there attaches less risk could hardly be imagined.

178. Bankers' Long Bills

Drafts drawn at sixty and ninety days' sight by bankers here upon bankers abroad are coming to take an increasingly important part in international exchange operations. Such bills of exchange may be divided into three classes: (a) long bills arising from the regular conduct of foreign exchange business; (b) long bills originating from the operation of loaning foreign money in this market; (c) long bills sold without security for the purpose of raising money - so-called "finance-bills."

With regard to the first class of bills, it need only be said that every banker doing a regular foreign exchange business is continually called upon to furnish customers with bills of exchange drawn at sixty and ninety days' sight. Take, for example, the case of a merchant here who owes a merchant abroad £l,000, due in two months, but who has the money on hand and wants to pay off the debt. He might buy a demand bill of exchange and get the merchant abroad to give him a rebate for the period of prepayment; but a far better way would be to go to his banker, get from him a sixty-day bill of exchange and send that. This is only one of a thousand different sources from which may spring a demand for bankers' long bills. Any banker at all actively engaged in the business must at any time be prepared to furnish customers with exchange of this kind.