STOCK EXCHANGE AN INTERNATIONAL MARKET g13 
Between the currencies of two gold standard nations, the 
rate of exchange will, of course, depend upon the actual amount 
of gold in their respective standard gold coins. This ratio is 
called the “par of exchange.” But when bank credit in terms 
of one coinage is exchanged for bank credit of a foreign 
coinage, these foreign exchange rates can and do fluctuate 
considerably. 
The Market for Foreign Exchange.—The current rate 
of Exchange arises from the conditions of supply and demand 
attending the purchase and sale of bills which are drawn in 
foreign currencies to make payments for the international 
traffic in goods and services. When, for example, an Ameri- 
can firm ships wheat to an English firm, it may obtain payment 
for the shipment by drawing a draft against the latter in 
pounds sterling and selling it, at the current rate of exchange, 
for American dollars. Similarly, if the American firm hires 
a British shipping company to transport the wheat to, say, 
Liverpool, the British company may elect to draw a dollar 
draft there against the American shipper and sell it, at the 
current rate for exchange, for pounds sterling. But while 
this is going on American buyers of English goods are seeking 
in New York, and British buyers of American goods are seek- 
ing in London, means of making their international payments. 
This they can do, with the assistance of a dealer in foreign 
exchange, by purchasing the drafts on the appropriate foreign 
country, which have been drawn by creditors of their own 
nationality, as shown above. For this reason there is a con- 
stant supply of and demand for sterling drafts in New York, 
and for dollar drafts in London. The rate of exchange be- 
tween dollars and pounds depends upon this double supply 
and demand for bills drawn in the two foreign currencies in 
the two centers. If more sterling bills, for example, are offered 
than demanded in New York, the rate for sterling here tends 
to decline from the mint par rate of exchange between pounds 
and dollars. and, of course, dollars rise in proportion above the