'l'o take a concrete instance, a traveler needs funds when he has reached, say, Naples. The correspondent in that city, as named in the list, is the Credito Italiano. The traveler presents his letter there and asks payment of Łtoo. The bank prepares a draft for .Ctoo to its order on the London bank and presents it to the traveler for signature, which is compared with the one on the list of correspondents. If the signature is found in order the bank pays the traveler in Italian money the equivalent of too at the prevailing rate for sight drafts on London. The draft states on its face that it is against the New York bank's letter of credit, No It is sent by the Italian bank to its London correspondent for collection and credit. The London drawee bank compares the traveler's signature with the specimen sent to it by the New York bank advising the issuance of the credit; if correct, the draft is paid and charged to the New York bank's account in sterling. The drafts are enclosed in special envelopes and sent to the New York bank. The let ter of credit department receives them and charges to letters of credit the total sterling amount converted at the cable rate, plus 1/8 per cent commission and six days' interest at 6 per cent.
Method of Using Travelers' Checks Travelers' checks are issued in numerical order under each denomination, and a numerical record is kept. The traveler signs each of the checks at the time they are issued to him. The checks are carried in a folder. A traveler, let us suppose, needs funds when he reaches, say, Marseilles; he goes to the desk of the hotel and in the presence of the clerk fills in one of his $too travelers' checks and countersigns it. If the clerk finds that the two signatures agree he pays the traveler 512.5o francs, the fixed value stated on the face of the check. The local bank in which the check is deposited by the hotel sends it to the nearest reimbursement office named on the back of the check. This correspondent charges the draft to the New York bank's ac count in francs. The draft is forwarded to the New York bank whose letter of credit department charges travelers' checks with the franc amount converted at the cable rate plus 1/8 per cent commission and six days' interest at 6 per cent. The differ ence between the amount of this charge and the Stoo paid by the traveler for the check, plus the use of the money while the check was outstanding, represents the bank's profit from the transaction.
If the travelers' check had been lost the traveler would have notified the London drawee bank, which in turn would have written to the banks named on the back of the check and asked them to stop payment. On the execution of an affidavit and an
approved bond of indemnity, the face amount of the check would be refunded or new checks issued in their stead. Obviously the readiness to accept travelers' checks makes forgeries and frauds easier than in the case of letters of credit. Sometimes the issuing bank undertakes to protect certain of its paying agents abroad against any loss to them from paying forged or raised travelers' checks.
The rapid fluctuations in exchange rates since the war forced the banks to withdraw temporarily from travelers' checks the fixed equivalents at which they were accepted abroad, and they were paid at the current rates for the clay of presentment. This necessity for conversion of dollars into foreign currency deprived travelers' checks of much of their convenience, for the hotels and shops had no means of determining the proper equivalents which they could safely pay. To meet this difficulty the Bankers Trust Company has arranged that the checks sold by members of the American Bankers' Association on it can be exchanged in London, Paris, or other city for like checks stamped with the equivalent in sterling, francs, or other exchange, based upon the exchange rates the date the checks are exchanged. This arrange ment makes it possible to enjoy the best rates of exchange that the market allows and also to have checks in the currency of the land in which the traveler moves.
Letters of Credit Issued by Foreign Banks The department handles three sorts of credits issued by foreign banks: I. The Universal or Circular Letter of Credit. This is similar to the credits issued by the New York bank described above. The issuing bank sends a special advice with a specimen of the holder's signature to the bank named as the reimbursement office.
2. The Specially Advised Credit. This is generally addressed to a single bank and the amount of the credit is available at that bank alone. Sometimes they are addressed to several banks, the names of some of the New York bank's interior correspond ents having been added; in such cases the issuing bank usually sends a special advice direct to these interior banks and at the same time asks the New York bank to confirm the advice to the interior banks selected.
3. These are orders to hold a certain sum of money at the disposal of a person who will call and draw it out as needed. A specimen of the signature of such persons is usually sent with the letter opening the credit. These orders are to pay under various conditions; some are payable on demand, and others are payable in instalments, as daily, weekly, monthly, or quarterly.