If the discount rate is higher in the drawee country than in the drawing country, the lower price would be in the drawee country. In this case, if the bank in the drawing country buys the bill with the idea of remitting it at once to the drawee coun try for discount and credit, it cannot afford to pay more than the lower price in the drawee country; but it may buy and hold the bill until maturity and realize its face value abroad. Compe tition among banks, therefore, will tend to raise the price in the drawing country, and the limit will be the price calculated at the lower discount rate.
This effect of discount rates on the marketing of bills is impor tant, for the market with the lowest rates tends to be the place to which bills drift for sale. The creditor country, since it has a surplus of funds, is most likely to have the lowest rate of discount, and therefore to have the greatest discount market. England and London have, for these and other reasons, been the inter national clearing house for the world's trade and finance, and New York can hope to supersede London only when she provides a greater discount market and lower discount rates. The prac tice has been for American banks to remit their bills at once to London for discount and credit, because the prevailing discount rate is usually lower in London than in New York. For the same reason English banks having bills on New York would not send them to New York for sale at the lower prices prevailing there. The want of a broad discount market would also limit such re mittances for sale and credit. The English banks tend rather to hold such bills until maturity, either in their own portfolio or that of their American correspondent.
The rate of discount in any market on any day varies for different bills, depending upon several factors, such as the length of time till maturity, the credit title of the drawer and drawee, and the character of the transaction out of which the bill arises. The longer the time till maturity the higher is the discount rate, because the buyer ties up his funds for a longer period and the credit risk is greater.
Clean Bills, Documentary Bills, Trust Receipts, and Bills Drawn Against Securities The differences between clean and documentary bills, and be tween documentary payment and acceptance bills, and their uses have been previously explained (page i54). The documentary bill differs from the dean bill in being secured by pledged collateral in addition to the credit of drawer, drawee, and indorsers. Long
commercial bills are commonly secured by the shipping or stor age documents covering the goods handled; the possession of these papers gives virtual possession of the goods to the holder of the bill, and he is secured so long as he retains the documents and the goods remain intact and marketable. If the documents cover goods such as live animals, the keeping of which incurs expense and depreciation, or highly perishable goods, or fashion able or seasonal goods, the collateral security is less valuable.
The shipping documents usually attached to documentary bills include the following: 1. Export, or "Through," Bills of Lading. These documents are issued by railroad companies carrying goods from interior points to seaports, in conjunction with steamship lines carrying goods from seaports to foreign countries. If the producer or shipper sends his goods to a forwarding company at the seaport, under an inland bill of lading, that company exchanges the in land bill for an ocean bill of lading when it forwards the goods. The bills of lading are generally made out to the order of the shippers and indorsed by them in blank; the holders of such bills of lading are then virtual owners of the goods. Bills of lading are issued in sets (duplicate or triplicate), and the number in the set appears on the face of the bills; the drawer should get the full set so as to secure full ownership of the goods.
2. Certificates of Marine Insurance. It is not necessary to take out insurance on railroad shipments, the law imposing the liability for loss or damage upon the railroad company. But an ocean shipment of goods should be fully covered by marine insur ance, either by the drawers or the drawees of the bills of exchange. The insurance is evidenced by a certificate of insurance attached to the draft and bill of lading. Marine insurance companies issue to exporters open policies of insurance, under which the exporter issues the certificates without delay at the time of ship ment and advises the insurance company to that effect. The premium is paid periodically. If the insurance is placed by the drawee abroad, because presumably at a lower premium rate, no insurance certificate accompanies the bill of exchange but the shipper or drawer attaches a written statement that the insurance is effected abroad.