At the meeting the condition of the foreign division at the close of business the night before is weighed. Special attention is paid to: 1. The total amount invested in foreign exchange, and all future contracts.
2. The exchange in balance, that is, the amount of foreign exchange on hand according to the books.
3. The foreign deposits, that is, the amount held by the bank on deposit for foreign correspondents.
4. The bank's rate of interest for demand loans.
The brokers report on the market situation; they know the tendency of the market the night before, the tendency as indi cated by the morning cables from Europe, and the probable course of the bank's competitors as gleaned by conversations with the brokers. After a general discussion the policy of the day is determined. This policy, when adopted, is strictly followed unless instructions to the contrary are received from the officers of the bank. The policy may be to initiate an aggressive campaign of buying or selling, for the purpose of influencing the market, and then to recoup when the market reacts.
The Positions For the use of the traders, different "positions" are kept by clerks attached to the traders' office.
1. The cable position is made up for the purpose of showing at a glance the bank's balances abroad which are available by cable. It shows exactly where its money is on deposit, and the different dates on which it becomes available for use. The posi tion is made up by taking as a basis the balances on hand the day before; adding all payments and remittances for the bank's credit, by cable or otherwise; adding all future cables bought; deducting therefrom all payments to the bank's debit by cable, draft, or otherwise; deducting all future cables sold; and deducting the amounts required to meet commercial credit payments.
2. The sight position is made to show the position at the next outgoing mail, that is, is made to show in advance what the bank's balances would be upon the arrival abroad of the next outgoing steamer, if no sales or purchases took place while the steamer was on the ocean. The factors appearing in this position are the end cable balances at the close of business the night before, plus the depot bills and the bills purchased for the steamer under consideration, less the exchange sold for the same steamer. The calculation gives the demand or sight position.
3. The profit and loss position is to determine daily the profit or loss on exchange transactions, and the conditions of the stock of exchange and the average cost. The demand or check rate is used as the basis of the calculations. The prices of all time bills purchased are brought up to the check rate by taking into consideration the discount, costs, and stamps. The prices of cables are brought down to the check rate by considering the element of interest. After all purchases and sales for the day have been entered on the sheets and each price correctly deter mined, they are totaled and the average price for the whole is calculated. As the purchases and sales for the day are never exactly equal, it is necessary to make adjustments. If sales exceed purchases and there is sufficient exchange in stock to cover the excess sales, the excess is taken from stock at the stock price; if purchases exceed sales, the reverse process is performed.
Actual Trading After the conference on the exchange the trading begins for the day, and then quotations are sent all over the United States and Europe. Rates are quoted over the counter, over the tele phone, by mail, and by telegraph. The bank may buy exchange not only in its home city but in every other market of the world, and it may deal in all kinds of exchange, with the possible excep tion, however, of its own long bills if it does not care for this form of borrowing to appear in its statement.
Some of the brokers have orders to buy and others to sell ex change; and as the brokers deal with the traders one at a time, it is the object of the traders to buy from one for account of his principal at one price and sell to another at a higher price. This object is accomplished in a variety of ways. For instance, if the market is due for an advance, the traders pay no attention to a broker who is a buyer and take only what the selling brokers offer; but the buying of the exchange at the price offered immedi ately leads the seller to raise his price, and thus the advance is already started on its way. If the sellers find their exchange is taken each time it is offered, the market continues to ad vance. On the other hand, the offering of exchange in a market which has no absorbing power will induce a fall in exchange rates.