It will be observed that the profit will be increased by any of the follow ing events: 1. That the interest period be less than 3 days.
2. That the gold coins be less abraded, and that the Bank of England pay a higher price.
3. That the freight, insurance, or interest rate, or the charges for cooperage, packing, or cartage, fall.
4. That gold bars be shipped instead of coins.
5. That sight exchange command a higher rate in the New York market.
6. That commissions be not charged.
2. The importation from London into New York of gold bars contain ing 72,56o ounces of standard gold, when the price of such bars in London is £3 i7s. to 1/2d., when the rate of interest in New York is 6%, and when cables on London in New York sell for 4.845.
If, therefore, the banker in New York can buy cables for 4.845, he will make $.0026 per pound sterling.
It is obvious that the profits will be increased by any of the following events: 1. That the price of gold bar fall in London.
2. That the rate for freight, insurance, packing, cartage, or interest fall.
3. That the price of copper alloy fall in New York.
4. That the time that the gold is in transit be shortened.
5. That the sterling cable rate fall.
If the New Yorker buys checks for remittance to purchase gold abroad, the interest will be calculated for zo days, that is, io days for the checks to get to London, and to days for the return of the gold. The actual time required for transit on the Atlantic is normally between 7 and to days.
Transactions under Joint Account Transactions are operated under joint account only when more favorable conditions are agreed upon than obtain in either "our " or " their " accounts. The rate of interest charged both here and abroad on overdrafts greatly exceeds the rate paid on credit balances; but in joint accounts the debit and credit rates agreed upon are equal or nearly so. It is also agreed between the parties to the joint account that of the buying and selling rates of exchange the most favorable will be employed when charging foreign amounts to this account.
To illustrate, suppose the New York bank and Lon.don bank agree upon 3 per cent as the rate of interest on debit and credit balances in their joint account. On June 3o, sterling demand
bills for delivery July I can be bought at 4.866o, but so keen is the demand in the New York market for pounds sterling payable in London on July that cable transfers can be sold for 4.875o. The traders buy from X in New York Exo,000 demand, to be delivered July 1, and sell Eio,000 cable to be paid to Y in Lon don on same date. The London bank charges the joint account Lio,000 value July for the cable payment; and the New York bank credits joint account value same date at 4.875o, or $48,750 and charges joint account Lio,000 demand at 4.866o, or $48,66o value July The steamer bearing this bill reaches England in time to have it collected on July to and the Lon,don bank credits joint ac count £ro,000 value July ED. The cable charge, say 5o cents, is charged when the bill is rendered to the New York bank, say, July 31. There being no other transactions during the month, the New York bank credits joint account 23 cents interest on the credit balance of $90 July to July 31, that is, 3o days at 3 per cent.
The London bank notifies the New York bank that it has charged joint account £7 los. interest at 3 per cent on the debit balance of £io,000 in joint account from July 1, when the cable payment was made, to July io, when the London bank was reim bursed by the draft. The New York bank credits £7 los. to joint account.
The London bank is instructed to charge the New York bank's account £5 9s. 4d., which it transfers to its own Profit and Loss accotmt; and the New York bank charges $26.62 to joint account, and credits Profit and Loss account. Now, had the London bank charged the New York bank 6 per cent interest on the debit balance, the interest would have been £i 5 and the account would have shown a loss. Likewise, the profit in joint account would have been practically wiped out if a profit in the rates of conversion had been taken by the operating bank.
The agreement to conduct a joint account may be a perma nent tmderstanding that either bank may use it when conditions warrant, or a special agreement may be tmdertaken on occasion to execute a particular transaction.