Bills of exchange and the accompanying docu ments are usually drawn in duplicate. The originals are forwarded on the first outgoing steamer, the duplicates are sent by the next mail. Sometimes the second bill of exchange is retained until a satisfactory sale can be made, in which case the maturity of the bill is based on the date that the first of exchange was accepted in London, accurately determined by the ar rival of the mail boat. The second bill of exchange bears the name and address of the holder of the ac cepted bill. Before payment the duplicate is at tached to the original. A bill of exchange may be taken up any number of times before it is due and be put into circulation between each payment, but once it is paid by the acceptor on its becoming due it cannot again be put into circulation.
6. Influence of the interest rate.—A bill drawn, say, on London at sixty days after sight is obviously not worth as much to the purchaser as a demand bill. He has to pay for a bill on delivery, send it over to London, obtain acceptance, and wait sixty three days after acceptance before the bill matures and is paid; in other words, there is sixty-three days difference between the currencies of a demand and a bill. Should the purchaser find it incon venient to await the maturity of the bill, he can in struct his correspondent in London to discount it at the current rate, and have the proceeds placed to his credit. In all exchange calculations, therefore, the rate of interest is based on the current rates obtaining in the country on which the bill is drawn; this rate varies slightly according to the nature of the bill. The rates applicable to various classes of bills are, roughly, as follows: Clean bills drawn on bankers—private discount rate.
Clean bills drawn on first-class above private discount rate.
Bills, with documents deliverable on acceptance below Bank of England minimum discount rate.
Bills drawn at over sixty days sight, bear a higher rate of discount, as a rule, than the market rate for sixties, owing to the element of risk on account of the possible change in the discount rate during the cur rency of the bill. It is obvious that if the London rate of discount happens to be higher than the New York rate, the purchaser of a sixty-day bill would probably prefer to allow the bill to run to maturity rather than discount it in London and use the pro ceeds in New York. Conversely, if the London rate was the lower he would prefer to discount the bill and withdraw the proceeds for use in New York. From
the foregoing it will be seen that the London rate has a powerful influence on the exchange market. The higher the rate of discount the greater the di vergence between the rate of exchange on long and short bills on London. A change in the interest rates of either London or New York is immediately re flected in the price of any bill. The conversion of a demand rate to a sixty-day rate includes an allowance for interest and British revenue stamps (1 shilling per £100): With a demand rate of 4.87 and a pri vate discount rate in London of 3%%, a banker's clean bill is worth 4.8385 as the following calculation shows: or the nearest commercial rate, $4.8385 per pound sterling. Elsewhere it has been shown that exchange rates between two countries either correspond or tend to correspond; this applies, however, only to the de mand rates.
7. Commercial long bills.—Commercial long bills are drafts drawn at thirty days or over by exporters on foreign customers, or upon banks abroad desig nated by the latter. A bill of this kind is usually ac companied by a bill of lading and other documents. Where a draft is drawn on a very good house abroad, or a bank, the documents are delivered upon the ac ceptance of the draft. Such drafts are known as "acceptance bills" or D/A.
Where the drawee's standing is less well-lalown or where the merchandise is perishable, documents are delivered only on actual payment of the drafts. These drafts are known as "payment bills" or D/P. In the case of a draft marked D/A, the drawee can obtain possession of the relative goods as soon as he, or the bank representing him, has accepted the draft. If the draft be marked D/P, the drawee must pay the draft (less a rebate for any unex pired time it has to run to maturity) before he can obtain the merchandise. When D/P bills are drawn against perishable goods they are invariably taken up "under rebate." Payment bills are not discount able, even after acceptance, as they are liable to be paid any time. before maturity and must, therefore, remain in the portfolio of the banker who presented them for acceptance. "Acceptance bills," on the other hand, become clean bills after acceptance, they are discountable in the London discount market and may change half a dozen times before maturity.