THE TRADERS' DEPARTMENT Functions of the Traders—Organization of the Department The traders buy and sell exchange of all kinds for profit. They are the great money-makers of the foreign division of the bank. Whereas the other departments serve clients for com missions or fees—that is, make collections, handle securities, issue commercial and travelers' credits, accept bills drawn on the bank, make payments, transfer funds, etc., for commissions or fees—the traders earn for the bank the profits from buying ex change at one price and selling at a higher. They determine, in the light of market conditions, the asking and bidding prices of exchange and whether the bank should on a particular day enter upon a buying campaign or a selling campaign. The cable rate, check rate, and other rates are fixed by the traders and used by the other departments when it becomes necessary to debit and credit items payable abroad; for instance, the foreign discount department, which actually handles the paper bought and makes the accounting records, uses in its bookkeeping the rates fixed by the traders.
The responsibility of the traders is, therefore, very g,reat, and the success or failure of the foreign division hangs upon their abilities. Only the most competent foreign exchange experts are appointed as traders. They must have a complete and expert knowledge of foreign exchange theory and practice and must be shrewd students of the market and tactful negotiators of sales and purchases. A quick comprehension of a situation, allied with the power of quick decision, is an essential qualification for success as traders. The general policy of a bank may be to curb speculative ventures, certain banks being more venturesome than others. Because of the high responsibility of the traders, they are usually made accountable directly to the bank officers in charge of the foreign division or are themselves officers.
The department organization is very simple. It consists of two or three traders, a clerk to handle and distribute the contract slips, and a telephone operator. The office is equipped with a ticker, general and private-wire telephones, and a counter over which brokers and traders converse.
Preparation of the Parity Sheets Very little trading is done between 9 and I° A.M., for
at this time the traders are busily engaged in receiving daily quotations and discount rates by cable from Europe. Further more, the brokers come in at this time and the traders sound them to obtain as much information about the trend of the market as possible. From the cable quotations the traders prepare their parity sheets.
The parity sheet does not refer to mint parities but to com mercial parities. A mint par, as has been explained in Chapter LIV, is the pure gold equivalent of the standard coins of two countries. The mint pars most commonly published in the financial page of the daily papers are as follows: The commercial rates vary from the mint parities as the con ditions of the market determine, and these rates follow the method of quoting the mint parity. There can be no mint parity between countries that are on different money standards; there may, however, be commercial parities between all countries.
The commercial parities are the relative values of foreign exchange on a certain day in United States dollars. To use normal pre-war rates for illustration, if the selling price of ster ling demand exchange in New York City were 4.8765 and the buying price of sterling demand exchange in Hamburg were 20.47, the commercial parity for mark demand exchange in New York would be 95.29 (or 4.8765 ÷ 20.47 X 4 X roo); but if the rates were 4.88 and 20.5o respectively, the commercial parity for maxk demand exchange would be 95.22 (or 4.88 ÷ 20.50 X 4 X roo). If the pound sterling were quoted in Amsterdam at 12.10 and in New York at 4.885, the guilder would be worth in New York 40.371 (or 4.885 ÷ 12.10 X 100). Or if the pound sterling were quoted at 25.22 francs in Paris and 4.88 in New York, one dollar is worth in New York 5.148 francs (or 25.22 ÷ 4.88 X MO). These parities mean that if the traders buy sterling in New York and send it to Hamburg, Amsterdam, or Paris, as the case may be, the cost of the currency produced by the sale of the ster ling is 95.29, 40.371, or 5.148, respectively, and the exchange must be sold at higher prices than these to make a profit. The process is reversed if the continental exchanges are bought in New York.