3. Determines the rate of interest allowed by London bankers on cash balances to the credit of foreign corre spondents, keeping active accounts with them, in so much that this rate is usually to 1% below the Bank rate.
4. Serves also to fix the rate of interest charged on cash overdrafts, on running accounts, as debit balances are gen orally subject to the Bank rate, or 1/2 to 1% above, according to agreement.
5. Establishes the open market discount rate in Great Britain at which private bankers, London joint stock com panies and discount houses will discount paper for local or foreign account, the rate ordinarily being from 1/4 to below the Bank rate.
6. Governs the "Retirement Rate of •Discount" on docu mentary payment bills, which is the rate of interest rebated to the drawee, or acceptor of a documentary payment bill for the time from the date of retirement or prepayment to the date of maturity of the bill, this rate being above the rate of interest allowed by London joint-stock com panies for short-time deposits, which rate is based on the Bank rate as above.
7. Affects the value of all international bills of exchange as an advance in the Bank rate either advances the rate of exchange for a demand sterling draft in a foreign country or depreciates the worth of a long time sterling bill, as the interest rate for credit balances and the discount rate for long time paper are indirectly dependent upon the Bank rate.
8. Has the power of protecting the gold reserve held by the Bank of England and of checking any protracted move ments of gold importations by foreign nations, in so much as an advance in the Bank rate adjusts the rates of foreign exchange to a point where operations of this nature become unprofitable.
9. Invites and attracts the deposits of foreign banks with London correspondents as an advance in the Bank rate to a figure in excess of the earning capacity at home induces continental money lenders to seek the London market for investment of their funds.
10. Indirectly has a tendency to depress or advance the values of stocks listed on the New York Stock Exchange— an advance in the Bank rate causing a decline in stock values, and a reduction in the Bank rate usually having the opposite effect, because the values of stocks are largely dependent upon the monetary conditions obtaining in New York, and as New York bankers in periods of stringency nowadays resort to relieve the situation by issuing Finance Bills drawn upon English bankers, the Bank of England rate indirectly either facilitates or precludes their course of action.