Exchange
in commerce is a method of making payments in distant places, without the actual transmission of money, but by a Bill of Exchange called Draft, which is a written request upon one person to pay a certain sum to another or to his order. The person who orders the money to be paid, is called the Drawer; the one who is directed to pay it, the Drawee, and the one to whom it is directed to be paid, the Payee.
Domestic or Inland Exchange is exchange between places in the same country: Foreign Exchange, between different countries.
If, for every little business transaction, money had to be sent from one business center to another, much needless inconvenience and expense would be incurred.
A man in Chicago owes a man in New York City a sum of money. He can send it to him in one of five ways:—
1. By Check.
2. By Post-office Order
3. By Express Order
4. By Bill of Exchange
5. By Telegraph
Suppose Mr. White of Chicago owes Mr. Brown of Boston $200 for groceries and Mr. Allen of Boston owes Mr. Warner of Chicago $200 for rent. Wouldn’t it save expense and trouble if Mr. White should go to Mr. Warner and Mr. Allen to Mr. Brown? Thereby two debts are cancelled by two city transactions and no money need be sent from one city to another.
This is all there is to Exchange, only in business life banks instead of individuals transact the business.
Only a small percentage of the money really passes from one city to another.
Exchange in the United States is carried on mostly by banks located in the large cities, which charge a small fee for transacting the business.
TABLE OF COMMERCIAL LAW IN THE STATES
| INTEREST LAWS | Statutes of Limitation | Exemption Laws | ||||||
|---|---|---|---|---|---|---|---|---|
| Legal Rate Per Cent | Per Cent Allowed by Contract and Penalty for Usury | Judg- ments | Notes | Open Ac- counts | Personal Property, Exempt | Homestead, Exempt | ||
| Alabama | 8 | 8; | Forfeit interest | 20 yrs. | 6 yrs. | 3 yrs. | $1,000 | $2,000 |
| Arizona | 6 | 12; | No provision | 4 yrs. | 4 yrs. | 3 yrs. | 500 | 2,500 |
| Arkansas | 6 | 10; | Forfeit principal and interest | 10 yrs. | 5 yrs. | 3 yrs. | 500 | 2,500 |
| California | 7 | Any; | No provision | 5 yrs. | 4 yrs. | 4 yrs. | ... | 5,000 |
| Colorado | 8 | Any; | No provision | 6 yrs. | 6 yrs. | 6 yrs. | ... | 2,000 |
| Connecticut | 6 | 15; | Fine or imprisonment, or both | 7 yrs. | 6 yrs. | 6 yrs. | ... | 1,000 |
| Delaware | 6 | 6; | Principal and interest forfeited | 10 yrs. | 6 yrs. | 3 yrs. | 200 | ... |
| Dist. of Col. | 6 | 6; | Forfeit interest | 12 yrs. | 3 yrs. | 3 yrs. | 300 | ... |
| Florida | 8 | 10; | Forfeit interest | 20 yrs. | 5 yrs. | 3 yrs. | 1,000 | 160 acres |
| Georgia | 7 | 8; | Forfeit excess of interest | 7 yrs. | 6 yrs. | 4 yrs. | 300 | 1,600 |
| Idaho | 7 | 12; | Forfeit interest and 10% of principal | 6 yrs. | 5 yrs. | 4 yrs. | ... | 5,000 |
| Illinois | 5 | 7; | Forfeit interest | 20 yrs. | 10 yrs. | 5 yrs. | 400 | 1,000 |
| Indiana | 6 | 8; | Excess interest forfeited | 20 yrs. | 10 yrs. | 6 yrs. | 600 | or 600 |
| Iowa | 6 | 8; | Forfeit interest and 8% of principal | 20 yrs. | 10 yrs. | 5 yrs. | 200 | or 40 acres |
| Kansas | 6 | 10; | Forfeit of double amount of usurious interest | 5 yrs. | 5 yrs. | 3 yrs. | ... | 160 acres |
| Kentucky | 6 | 6; | Forfeit of interest | 15 yrs. | 15 yrs. | 5 yrs. | 250 | 1,000 |
| Louisiana | 5 | 8; | Forfeit interest | 10 yrs. | 5 yrs. | 3 yrs. | ... | Total 2,000 |
| Maine | 6 | Any; | No provision | 20 yrs. | 20 yrs. | 6 yrs. | ... | 500 |
| Maryland | 6 | 6; | Forfeit interest | 12 yrs. | 3 yrs. | 3 yrs. | 100 | ... |
| Massachusetts | 6 | Any; | No provision | 20 yrs. | 6 yrs. | 6 yrs. | ... | 800 |
| Michigan | 5 | 7; | Forfeit interest | 6 and 10 | 6 yrs. | 6 yrs. | 500 | 1,500 |
| Minnesota | 6 | 10; | Forfeit interest | 10 yrs. | 6 yrs. | 6 yrs. | 500 | 80 acres |
| Mississippi | 6 | 10; | Forfeit interest | 7 yrs. | 6 yrs. | 3 yrs. | ... | 2,000 |
| Missouri | 6 | 8; | Forfeiture or misdemeanor | 10 yrs. | 10 yrs. | 5 yrs. | 300 | 1,500 (min.) |
| Montana | 8 | Any; | No provision | 10 yrs. | 8 yrs. | 5 yrs. | ... | 2,500 |
| Nebraska | 7 | 10; | Forfeit interest | 5 yrs. | 5 yrs. | 4 yrs. | 500 | or 2,000 |
| Nevada | 7 | Any; | No provision | 6 yrs. | 6 yrs. | 4 yrs. | ... | 5,000 |
| New Hampshire | 6 | 6; | Forfeit three times excess | 20 yrs. | 6 yrs. | 6 yrs. | ... | 500 |
| New Jersey | 6 | 6; | Forfeit interest and costs | 20 yrs. | 6 yrs. | 6 yrs. | 200 | 1,000 |
| New Mexico | 6 | 12; | Forfeit of twice the amount of interest | 7 yrs. | 6 yrs. | 4 yrs. | 500 | 1,000 |
| New York | 6 | 6; | Forfeit of principal and interest; misdemeanor | 20 yrs. | 6 yrs. | 6 yrs. | 250 | 1,000 |
| North Carolina | 6 | 6; | Forfeit interest | 10 yrs. | 3 yrs. | 3 yrs. | 500 | 1,000 |
| North Dakota | 7 | 12; | Forfeit interest | 10 yrs. | 6 yrs. | 6 yrs. | 1,000 | 5,000 |
| Ohio | 6 | 8; | Forfeit interest over 6% | 5 yrs. | 15 yrs. | 6 yrs. | 100 | 1,000 |
| Oklahoma | 6 | 10; | Forfeit interest | 5 yrs. | 5 yrs. | 3 yrs. | ... | 5,000 |
| Oregon | 6 | 10; | Forfeit principal and interest | 10 yrs. | 6 yrs. | 6 yrs. | ... | 1,500 |
| Pennsylvania | 6 | 6; | Forfeit excess of interest | 20 yrs. | 6 yrs. | 6 yrs. | 300 | ... |
| Rhode Island | 6 | Any; | No provision | 20 yrs. | 6 yrs. | 6 yrs. | 800 | ... |
| South Carolina | 7 | 8; | Forfeit interest | 20 yrs. | 6 yrs. | 6 yrs. | 500 | 1,000 |
| South Dakota | 7 | 12; | Misdemeanor | 20 yrs. | 6 yrs. | 6 yrs. | 750 | 5,000 |
| Tennessee | 6 | 6; | Forfeit of excess interest | 10 yrs. | 6 yrs. | 6 yrs. | ... | 1,000 |
| Texas | 6 | 10; | Forfeit interest | 10 yrs. | 4 yrs. | 2 yrs. | 500 | 5,000 |
| Utah | 8 | 12; | Forfeit excess interest | 8 yrs. | 6 yrs. | 4 yrs. | ... | 2,000 |
| Vermont | 6 | 6; | Forfeit of excess interest | 8 yrs. | 6 yrs. | 6 yrs. | 200 | 500 |
| Virginia | 6 | 6; | Forfeit interest | 20 yrs. | 5 yrs. | 2 yrs. | ... | 2,000 |
| Washington | 6 | 12; | Forfeit of double accrued interest and costs | 6 yrs. | 6 yrs. | 3 yrs. | 1,000 | 2,000 |
| West Virginia | 6 | 6; | Forfeit excess interest | 10 yrs. | 10 yrs. | 5 yrs. | 200 | 1,000 |
| Wisconsin | 6 | 10; | Forfeit treble amount of usurious interest paid | 20 yrs. | 6 yrs. | 6 yrs. | 200 | 5,000 |
| Wyoming | 8 | 12; | Forfeit interest | 5 yrs. | 5 yrs. | 8 yrs. | 500 | 1,500 |
Note.—In many of the States it is impossible to place a fixed amount on personal property exempt. In the table above these states have no amount given in the personal property column. Days of grace have been abolished in all states except the following: Arkansas, Mississippi, South Carolina and Texas.
If the drawee accepts the draft, he writes across the face of it “Accepted” with the date and his signature. This is called an Acceptance.
Once accepted, the draft becomes a note, with the same laws regulating it. If the draft is not accepted, it is not binding and we say that it has been “dishonored.”
A bill of exchange is entitled to days of grace, if it is payable in a State where grace is allowed, unless a particular day is named in the draft. In most States, no grace is allowed on sight drafts.
Principles of Exchange
To find the cost of a draft, the face and rate per cent of exchange being given.
Rule.—Find the percentage of the given rate per cent of exchange and add it to, or subtract it from the amount of draft.
Example: What is the cost, in Chicago, of a sight draft on Denver for $400, if exchange is 3⁄4% premium; and how much if 1⁄2% discount?
$400 ×.003⁄4 = $3; $400 + $3 = $403, at 3⁄4% premium.
$400 ×.001⁄2 = $2; $400 - $2 = $398, at 1⁄2% discount.
To find the face of a draft, cost and rate per cent of exchange given.
Rule.—Divide by the cost of a draft for $1, at given rate per cent of exchange.
Example: Find face of draft that can be bought for $1000 at 1% premium; at 1% discount.
$1000 ÷ 1.01 = $990.10, at 1% premium.
$1000 ÷.99 = $1010.10, at 1% discount.
Time Drafts, when negotiated before maturity, are subject to discount which is computed on the face of the draft, the same as interest.
Example: What is the proceeds of a 60-day draft for $800, at 5⁄8% premium, and discounted at 7%?
| $805.00, | face + 5⁄8% premium |
| 9.33, | interest (7%, 60 days) |
| $795.67, | proceeds. Ans. |
Foreign Drafts are usually made payable in the money of the country on which they are drawn.
To find the equivalent of foreign money in United States money and vice versa.
Rule.—Multiply, or divide (as the case may require) the given sum, by the equivalent of a unit in United States money.
Example: What is the cost of a draft on London for £125, reckoning exchange at $4.8665?
125 × 4.8665 = 608.31. Ans. $608.31.
Wishing to remit $182.50 to Ireland, for what amount must I buy a draft on London?
182.50 ÷ 4.8665 = 37.5. Ans. £371⁄2.
How many francs in $100?
100.000 ÷.193 = 518.13. Ans. 518.13 francs.
How many dollars in 7500 German marks?
7500 ×.238 = $1785, Ans.
How many Swedish crowns in $750?
750 ÷.268 = 27981⁄2 crowns, Ans.
How many dollars in 4635 rubles?
4635 ×.772 = $3578.32, Ans.
A simple method to reduce pounds sterling to United States money, and vice versa; exchange being at $4.8665.
Rule.—Multiply pounds sterling by 73, and divide the product by 15. Or multiply dollars by 15 and divide the product by 73.
Examples: How many dollars in £85?
85 × 73⁄15 = 413.67. Ans. $413.67.
How many £’s in $748.25?
748.25 × 15⁄73 = 1533⁄4. Ans. £1533⁄4.
Another method to change pounds sterling, shillings and pence, to dollars and cents.
Rule.—Reduce pounds sterling to shillings, add the shillings, and multiply the sum by.241⁄3—the product will be cents. Add 2 cents for each pence, if any.
Example: Change £46, 13s. 9d. to United States money.
| 46 × 20 | = | 920 | 933 ×.241⁄3 | = | 227.03 |
| 13 | 9d. | = | .18 | ||
| 933 | Ans. | $227.21 | |||
Tourists of today patronize express companies for Foreign Money Orders. These are made out similar to regular express money orders and may be cashed in any of the larger cities of all foreign countries. They take the place, to a large extent, of Letters of Credit, which are letters from banking houses in one country to those in another, allowing sums to be drawn not to exceed a total named in the letter.