The next requisition is for a draft on Paris for fcs. 5,000 at 5.19%. When francs are quoted this way, so many francs for one dollar, we decrease the rate in selling; in other words, we buy high and sell low. Paris funds cost us 5.20 %—%2 or 960.08 for fcs. 5,000; if we sell at 5.19% we shall receive $962.69, making a profit of $2.61.
If we quoted 5.20 we should receive $961.53, a profit of $2.05.
Conversion - $962.69.
5.19% A decrease in the rate % centimes corresponds to a profit of % of one per cent on the dollar amount.
5. German Jenkins wants to send 1,000 marks to his daughter in Berlin, for which we charge him $237.79, at the rate of 94% cents per 4 marks.
Conversion: .2371875 the value of one mark in cents, or $237.19 for 1,000 marks. The draft should be filled out in marks, and odd pfennigs should be avoided. See that the draft reads pay "out of money at our credit" or "out of balance," or that there are words to that effect, since otherwise it will be subject, as are bills of exchange, to stamp taxes of of one per cent.
German exchange is also quoted at so many cents to the mark, advancing by steps of .01 cent, 24.01, 24.02, etc., and a fluctuation Of .01 cent means about 42 cents on $1,000. The conversion requires no ex planation. An advance of % cent per 4 marks cor responds roughly to % of one per cent on the dollar amounts.
6. Sundry Lung, who, by the way, is a very close figurer on exchange rates, wants a draft on Hongkong for $100 local currency, for which we quote him $49.20 for each Mexican or, as it is called, local-currency dollar. His draft, therefore, costs him $49.20. In making out the draft on Hongkong, "One hundred dollars Local Currency" (the use of "cents" should be avoided if possible) should be writ ten in the body of the draft. Drafts on Hongkong are generally made out to bearer; so that the remitter runs considerable risk in using them.
If Won Lung had asked for the equivalent of $100 in local currency he would have received a draft for Loc. Cur. $203.25 Belgium, Switzerland and Italy are members of the Latin Union, and their monetary system and quo tations are similar to that of France, with the ex ception that the franc is called the lira (plural lire) in Italy. There is very little demand for drafts on other countries of Europe, and such demand is only for small amounts for individual use. Large transactions are settled by means of drafts on the big centers—London, Paris and Berlin—and exchange on these points generally commands a premium in other European cities.
7. Travelers' checks.—The next customer is Mr. Brown, who intends to visit Europe and who asks us to arrange his finances for the trip. He requires a letter of credit for £1,000, travelers' checks for $500 and £10 in sovereigns.
Travelers' checks, altho sold and payable in dol lars (in denominations of $100, $50, $20 and $10) are also payable in the principal foreign countries for the full fixed amounts in foreign currencies printed on the face of the checks; there is no deduction for com mission. In those colonies which use the same cur rency as their mother countries, the checks are payable at the current rate for purchasing exchange on the capitals of the respective mother countries.
Travelers' checks may be cashed practically any where. They are self-identifying and easily nego tiated. Mr. Brown pays $502.50 (% of one per cent commission) and receives: 1. A book of checks of the denominations he requires.
2. A list of correspondents, hotels, etc., that will cash the checks.
3. A letter of identification, which he signs in our pres ence and which is used by the correspondents for comparison with the signatures on the checks when he obtains the cash. This letter also contains the numbers and amounts of the checks.
Some banks do not use a letter of identification, but require a signature of the customer to be placed on each check before issue. Thus every check carries its own identification but the risk is greater than when the letter is used.
8. Issue of a letter of credit.—We now come to the circular letter of credit and give Mr. Brown: 1. The letter itself for £1,000.
2. A letter of indication bearing his signature.
3. A list of correspondents from whom money may be drawn.
Mr. Brown signs an agreement that any check drawn by him against the credit shall be charged to his account at the current rate of exchange of the day when presented to us for redemption, plus a commis sion of one per cent. If the customer is of high finan cial standing this agreement will be sufficient, since there will always be funds in his account with which to meet the withdrawals; if he is not of high standing, financially, cash or securities to the amount of the lia bility must be deposited.