INLAND EXCHANGE.
Suppose a merchant, residing in London, orders his agent in Glasgow to purchase a thousand pounds worth of cottons on his account; then, although it should not suit the Glasgow merchant to commis sion goods of equal value from his London corre spondent, the latter may nevertheless be under no necessity of remitting cash to Glasgow to discharge his debt. Among cities, or countries, having a con siderable intercourse together, the debts mutually due by each other are found, in ordinary cases, to be nearly equal. And, therefore, the Glasgow mer chant, who has shipped the cottons for London, does not transmit the bill, drawn by him on his corre spondent for their price, directly to London to be cashed, for that would subject him to the expence of conveying the money home from London to Glas gow, but he gets its value from some other merchant sn Glasgow, who has payments to make in London, on account of teas, wines, &c. imported from that city, and who, unless he could procure such a bill, would be obliged to remit their price in money. The bill on account of the cottons is, therefore, either drawn in favour of the person to whom the money for the tea and wine is owing in London, or it is drawn in favour of the tea merchant in Glasgow, and indorsed to him; and this last person, by presenting the bill to the purchaser of the cottons, receives its value, and con sequently the price of the cottons, and the price, or part of the price, of his tea and wine at the same moment. By this simple contrivance, therefore, the expence and risk attending the double transmission, first, of money from London to Glasgow to pay the cottons, and, second, of money from Glasgow to Lon don to pay the teas and wines, is entirely avoided. The debtor in one place is changed for the debtor in the other; and both accounts are settled without the intervention of a single farthing.
The bill drawn and negotiated in such a transac tion as this, is termed an inland bill of exchange. If the transaction had taken place between London or Glasgow, and a foreign city, it would have been termed a foreign bill of exchange.
A bill of exchange may, therefore, be defined to be, " An order addressed to some person residing at a distance, directing him to pay a certain specified sum to the person in whose favour the bill is drawn, or his order." • The price of bills of exchange fluctuates accord ing to the abundance or scarcity of them in the mar ket, compared with the demand. Thus, to revert to our former example, if we suppose the debts reciprocally due by London and Glasgow to be equal, whether they amount to L.10,000, L.100,000, or any other sum, they may all be discharged with out the agency of money, and the price of bills of exchange will be at PAR; that is, a sum of L.100 or L.1000 in Glasgow will purchase a bill for L.100 or L.1000 payable in London, and vice versa. But if these two cities are not mutually indebted in equal sums, then the price of bills of exchange will be increased in the city which has the great est number of payments to make, and will be pro portionably reduced in that which has the fewest. If Glasgow owes London L.100,000, while the debts due by London to Glasgow only amount to L.90,000, it is clear, inasmuch as the merchants of Glasgow have a larger sum to remit to London, than the mer chants of London have to remit to Glasgow, that the price of bills on London would rise in Glasgow, be cause of the increased competition ; and that the price of bills on Glasgow would fall in London, be cause of the proportionably diminished competition. And hence a larger sum would be required to dis charge any given amount of debt due by Glasgow, and a less sum would be required to discharge a corresponding amount of debt due by London ; or, which is the same thing, the exchange would be rin favour of London, and against Glasgow. Bills on London would sell in Glasgow for a pre mium, and bills on Glasgow would sell in London at a discount, the amount of the premium in the one case, and of the discount in the other, being obvi ously equal.