Foreign banking business is done for the most part through accounts carried with the banks abroad in their currencies. Of course, the foreign banks find need for accounts in dollars in America so that they keep dollars on deposit with American banks. All that can be given here is a brief introduction to foreign exchange bookkeeping. The trial balance which was exhibited in a preceding chapter does not provide accounts for foreign bookkeeping, but such accounts will be shown in connection with foreign department entries at this point. Assume that the foreign exchange business of this bank is restricted to the purchase and sale of sterling currency; purchase and sale of sterling exchange, by which is meant the purchase and sale of portions of bank balances abroad; advancement of funds on foreign bills which are sent abroad for collection; and to the issuance of dollar acceptance credits. The above items are indicative of the major transactions in most foreign departments. To illustrate a purchase of foreign exchange: Suppose a cable transfer for £10,000 sterling was purchased at the rate of $4.50 for the purpose of setting up a foreign bank balance with Barclays' Bank, Ltd., London. The entry covering that transaction would be:

In addition to the debit which is for the general ledger of the bank, there would be a departmental entry charging Barclays' Bank with £10,000 sterling and $45,000. The debit side of the foreign bank account would look something like this:

The value date mentioned is the estimated date on which the £10,000 sterling will be placed to the credit of our account in the London bank. Assume further that a cable transfer sale was made on the same date of £5,000 sterling at the rate of $4.60. That item would appear on the credit side as follows:

From the foregoing it would appear that ten cents per pound was made on the sale. In practice such a difference between purchase and sale rates would seldom exist. The illustration is given to indicate that profit in foreign accounts is largely made by the purchase of exchange at a lower rate than that at which it is sold. This is a general statement and should not be taken too literally, for when a department deals in futures, profit determination is quite complicated.