2. Cartage and Packing. For distant shipment bars are preferable to coins, for the abrasion is less and carting and pack ing are easier. The packages must be carted from the federal reserve bank or other vaults to the steamer and, on arrival abroad, from the steamer to the bank; many other cartings may be necessary if the gold is carried to ports other than London. The overhead of these operations is much reduced per unit if the shipment is large.
3. Freight and Expi.ess. These items vary with the rates and depend on volume, distance, direction, season, carrier, etc. Dur ing the war the great demand for shipping raised freight rates to a high figure.
4. Insurance. This item varies with the distance, vessel, season, and other factors. It was most seriously affected during the war, and to the regular marine risks were added the high war risks.
5. Assaying. When a shipment reaches London it must be tested for purity and weighed; this is a necessary addition to the expense of gold shipments.
6. Interest. Suppose a New York bank exports gold to London, drawing a sight draft against the proceeds and selling it the same day the gold is shipped, and that the draft and gold go on the same steamer. Obviously the buyer (remitter) of this draft, paying cash, is deprived of the use of his funds until the draft arrives abroad and is collected from the drawee bank. In normal times this takes about seven days; the buyer might have waited until this seventh day and cabled his remittance, he him self thus enjoying the use of his funds rather than letting the New York bank use them. The sight draft rate should be less than the cable rate by the interest for the seven days. But the gold on arrival goes first to the assay office for assaying and weighing, and the draft will have been presented at least three days before the New York bank is credited for the gold shipped. If the Lon don bank honors the draft, Ba's account is overdrawn three days, and Ba should rightfully pay Be interest for this loan (overdraft) at the London rate. Ba must, therefore, deduct from his cable price to the American buyer the interest for seven days, and must pay Be interest for three days' overdraft. But Ba has the use of the funds in New York for the seven days, hence only the in terest on the overdraft should be regarded as part of the expense of exporting gold. If a cable instead of a demand draft is sold
the same day the gold is shipped, the interest loss is for a ro-day overdraft.
In case Ba imports gold, he loses the interest on the purchase price for the entire time of transit. Whether Ba instructs Be to buy gold and charge to his account, or instructs Be to sell some of his bills held in depot and buy gold, or remits funds by cable to buy gold, he loses the use of the purchase price until the gold actually arrives in his New York vaults.
Because the different expenses connected with gold shipments vary somewhat from season to season, the gold points must neces sarily vary; an increase in insurance rates, freight rates, etc., raises the gold export point and lower's the gold import point. During the war these items rose very high, and unprecedented exchange rates resulted from this among other causes.
In normal times the gold points, as said before, cannot differ from par by more than the cost of shipping specie; but this as sumes that there are free markets for gold, wholly free, as in the United States, or nearly free, as in pre-war England, where the price varied within limits. During the war there were no free markets for gold; embargoes were laid for political, financial, and military purposes, on gold shipments by the belligerents and neutrals; and the exchange rate on London was pegged by the British government, through its New York representative buy ing or selling at a price the exchange needed. French, Italian, and Belgian exchange was also pegged, but less perfectly.
Investment and Speculation in Exchange Exchange is subject to speculative buying and selling. The price fluctuates from causes not all of which can be definitely determined, but with results that can in part be predicted with more or less accuracy. Exchange can be definitely described in terms known and accepted by exchange dealers, and contracts for future delivery are, therefore, possible. The dealer in. ex change may buy exchange at a low price to hold for a high price; or he may sell present holdings of exchange at a high price and plan to repurchase the same later at a lower price; or he may sell for future delivery exchange which he does not hold and plan to buy exchange later at a lower price to cover his contract.