3. Cable transfers.—A cable transfer or "cable," as it is more generally called, is a transfer of funds by cable, no question of interest being involved as pay ment is immediate. Apart from this a "cable" differs from a check only in the fact that the banker abroad is told by a cable, instead of by a written order or check sent by mail, to pay out the money. The cable dispatches should be sent the night before, or early on the morning of the day on which payment is due; otherwise, owing to the difference of time between New York and London, the London bank will be closed and the payment delayed until the following day. As the money is received and paid on the same day, it is obvious that the banker must charge a higher rate of exchange for a cable than he would for a check, because he has the use of the amount of the latter while it is in transit. The mail time between the two points involved and the current interest rate at the paying point are the main factors which determine the difference in the rate of exchange between cables and demand drafts. The higher the rate of interest and the slower the mail steamer, the more the quotations diverge. With a demand rate of exchange at $4.86, an eight-day steamer and a London market rate at per cent, the cable equivalent would be 4.8632, 4.86+.0052 (8 days' interest). These rates are ren dered more or less divergent according to the supply of or demand for checks and cables respectively.
4. Unusual rates for cables.—It has already been noted that the outbreak of the European war raised cable rates on London to an unprecedented point. In his work on "International Exchange" Mr. A. W. Margraff summarizes the conditions which produce abnormal rates as follows: 1. Flurries on the New York Stock Exchange with the incidental abnormal high rates for money, frequently induce New York bankers to sell their checks on London for amounts largely in excess of their cash credit balances in the hands of their London bankers, and enables them to relieve the stringency of the money market and at the same time obtain a higher rate of interest by loaning the money realized in selling their London checks.
The manner of covering these checks prior to their presen tation for payment in London is and can be effected only thru the purchase of cable transfers, and these operations when indulged in extensively, naturally create a brisk market demand for cable transfers, and fancy prices in many in stances have to be paid.
2. Exceptionally high rates for London checks, caused by an unexpectedly heavy inquiry and a scant supply of com mercial bills of exchange, might tempt the aggressive banker to avail himself of the high price by selling his checks on London short, basing his calculations on a decline in the price of exchange, during the transit of his checks to a paint where he can buy cable transfers in reimbursement for ap proximately the same rate he sold his checks, and in that event he would have had the free use of the proceeds of his sale of checks in the interim for loaning purposes.
Unforeseen circumstances often offset the calculations of the financier, and instead of the anticipated decline, the mar ket has remained stationary or in fact had an advance and in the face of these conditions the many short sales of checks must still be covered by cable transfers at about any price the seller may dictate.
3. The fortnightly settlement days on the London Stock Exchange occurring about the middle and the end of each month influence also the price for cable transfers, and New York banking firms engaged in transactions in the London market frequently are called upon, especially in a wide and fluctuating market, to protect their operations by the cash payment on these days, of very large sums of money that are transferred by telegraph and result in a heavy demand for cable transfers.
4. There are many bankers not averse to having their for eign accounts show a debit balance at various times thruout the half-yearly account periods, and who thru a sentiment of pride and an implied request on the part of their European friends, always close their accounts on 30th June and 31st December with a liberal cash credit balance created in most cases at the last moment by the purchase of cable transfers.
The demand for cable transfers thru this source is suffi ciently large to induce some bankers to establish large credit balances with their London friends during the months of June and December, thereby placing themselves in a position to sell cable transfers on 29th June and 30th December at the advanced prices which usually obtained then.
5. Loiig exchange.—Long-time drafts may be diyided into bankers' long bills and commercial long bills; both classes are drawn at sixty or ninety days after sight, except in special cases, when the time limit may be longer.
Commercial long bills with or without documents attached are drawn on foreign debtors by merchants and importers against shipments of goods abroad; they are usually purchased by bankers who remit them to their foreign correspondents for collection and credit and sell their own bills against the balance so created.
When a bill of exchange is drawn for the exact value of the goods exported and has the bill of lading, insurance certificates, etc., attached, it is known as a "documentary" bill of exchange. It is accompanied by instructions attached to surrender the documents on payment (D/P) or on acceptance (D/A). H no documents are attached to a bill, it is known as a "clean" bill of exchange. Bankers' bills are invari ably clean bills, while commercial bills, unless drawn by a house of high standing on another of equal rating, are usually documentary.