FOREIGN REMITTANCES 1. Non - commercial exchange.—Altho the greater portion of foreign exchange originates in commercial transactions, there is a constantly increasing volume of exchange business created by travelers and im migration. A steady stream of travelers and others leave the United States and Canada each year to visit Great Britain, Europe and other parts of the world, carrying with them the necessary funds for their expenses in various forms, such as circular let ters of credit, travelers' checks, drafts and gold.
The remittances of immigrants to their relatives and friends in their home lands amount to a surpris ingly large figure in the course of a year. These remittances are generally made by means of drafts, foreign money orders, or by what are called mail re mittances.
For many years these two classes of foreign busi ness were in the hands of foreign bankers who made a specialty of the business of supplying banks, both in the United States and Canada, with the necessary forms and foreign machinery for issuing circular let ters of credit and selling travelers' checks. Gradu ally the larger banks both in the United States and Canada felt the increasing pressure of their clients' requirements in this connection, and found it advis able to establish their own systems of travelers' checks, etc. Practically every important bank has now direct correspondents in the principal cities of the world with whom they have made the necessary arrangements for the payment of circular letters, travelers' checks and the like.
A comparison of the different methods of remit tance and a description of the manner in which they are operated is interesting.
2. Principles underlying the issuance of - A demand draft or check is an unconditional order issued by one bank on another bank or banking firm asking the bank to whom it is addressed to pay a cer tain sum of money to a specified person or institution. (See Figure 1.) In the case of a bank keeping an account in an other country where the exchange value of the cur rency is steady and for which rate quotations are easily obtainable, drafts are usually drawn in the currency of that country and, after payment, are charged to the account which the issuing bank keeps with its correspondent at the face amount. If the
arrangement calls for payment of the drafts at par, the correspondent's commission (if any) is added to the face amount of the draft when charged to the account. Drafts are often made payable at the office of a third bank or banking firm for account of the issuing bank's correspondent.
Drafts are also issued on correspondents with whom no account is kept. In such cases, cover-drafts in favor of the correspondent for the amounts in volved plus commission, drawn against the issuing bank's account in one of the large selling cities (Lon don, Paris, Berlin, New York, etc.) are forwarded with the relative letters of advice, or the correspond ent is requested to forward the paid draft to the issu ing bank's correspondent in one of these cities for redemption.
When a bank is requested to issue drafts on a coun try for which it has made no draft arrangements, a sterling draft on the bank's London, England, branch or correspondent is usually sold, sterling drafts on London being more easily negotiated than those drawn in other currencies, owing to the fact that the great majority of banks thruout the world have cor respondents or accounts in that city, and the exchange rates for sterling are much steadier and more widely quoted than those for other currencies.
To guard against loss in the case of countries in Africa, Asia or South America where silver units exist or the exchange value of the currency is subject to great fluctuations, drafts are usually drawn in sterling on the London branch or correspondent of the issuing bank and crossed "Payable at the drawees' buying rate for sight bills on London," or with a phrase similar in meaning. The correspondent on whom such drafts are drawn pays them in local cur rency at a rate of exchange which includes his com mission and other charges, and afterward forwards them to London for redemption at the face amount of sterling.