223. International Trading In Securities

The fourth consideration making for high exchange has reference to the selling of securities by one market in another. When Europe sells stocks, for instance, we buy, and when we buy we have to pay for what we have bought. It is well worth while to note the relation between exchange rates and the movement of some of the international stocks. A sudden selling movement by London of, say, forty or fifty thousand shares of high-priced stocks is very often enough to give a sharp upturn to exchange rates here. As an underlying and continued influence the trade balance or low money here, or high money there, may have a much more powerful effect, but this question of a sudden demand for exchange to pay for forty or fifty thousand shares of stock is enough to cause astonishingly sharp swings in the exchange market - often enough, in fact, to push the rate just above the gold export point.

224. Methods Of Moving Gold

Turning from the discussion of reasons why gold moves from one country to another to the way in which it moves, shipments may be divided into two broad classes, direct and indirect. In the first case the gold is shipped straight to the point to which it is desired to transfer the balance. In the other case the gold is shipped to some third place for the purpose of buying exchange upon the place to which the balance is actually to be transferred.

Taking up direct shipments first, the operation is about as follows: A banker, finding exchange conditions favorable, decides to ship, say, £40,000 to London. He goes to the assay office, buys the gold and ships it to his foreign correspondent, at the same time drawing bills of exchange against the newly created balance. If one can sell these bills of exchange for more dollars than it cost him to buy the gold, pay the charges on it, and ship it across, he makes the difference.

The following tables show the operation in detail. The first table shows what it costs to get the gold out of the assay office and send it to Europe. The other tables show what amount of foreign currency would be realized in case the metal were sent to either England, France, or Germany, and the rate at which the American banker shipping the gold would have to sell his reimbursing drafts in order to come out even on the transaction:

Cost Of Buying And Shipping Gold

10,000 ounces bar gold, .993 fine, at $20.6718325 per ounce 1,000 fine....................................................

Plus premium, United States assay office, 4 - 100 per cent......

Packing, cartage, etc., 5 kegs at $2.25 per keg................

Freight, 5-32 per cent ......................................

Insurance, 1-20 per cent, less 10 per cent....................

$205,271.29 82.08 $205,353.37

11.25

320.75

92.34 $205,777.71

Credited In Great Britain

10,000 ounces gold, .993 fine, at 77s. 9d. per ounce standard .

Less 1-40 per cent commission.........£10-10-0

Petties ............................... 1-18-0

To come out even, drafts must be sold at 488.78.

£42,112 - 10 - 0

12- 8-0

£42,100- 2-0

Credited In France

To come out even, drafts must be sold at 515.766.

Fcs. 1,061,542.10

309.50

Fcs. 1,061,232.60

Credited In Germany

10,000 ounces gold .993 fine at 2784 marks per kilogram ..

Less 1-40 per cent commission....................ks. 215.00

To come out even, drafts must be sold at 95.754.

Mks. 859,858.30

252.60

Mks. 859,605.70