STOCK EXCHANGE AN INTERNATIONAL MARKET 515 
paid for, foreign exchange rates afford an interesting and often 
reliable index to the condition of a nation’s foreign trade bal- 
ances. When America sells more goods and services to the 
rest of the world than she buys from it, normally dollar ex- 
change will tend to rise in foreign currencies, and foreign ex- 
change rates decline in New York. Conversely, when we are 
selling to the world less than we are buying from it, dollar 
exchange will ordinarily tend to decline abroad and foreign 
exchange rates rise in New York. 
Yet the shifting of short-term bank credit will often mini- 
mize or prevent such operations in the normal course of events. 
If, for example, British sterling exchange begins to decline 
in New York, speculators in foreign exchange may be tempted 
to use their dollars to purchase sterling short-term banking 
instruments in the hope of reselling them later when a higher 
sterling exchange rate prevails. Also, interest rates will often 
rise in a country whose currency is declining in the foreign 
exchange market, and this may persuade foreign capitalists and 
financial institutions to transfer their funds from the lower to 
the higher interest country. This is one reason why central 
banks tend to raise their discount rates when their home 
currency is declining in the foreign exchange markets, and 
lower them when it is rising. 
Thus, owing to the supplies of liquid speculative capital in 
the leading financial centers, to changes in comparative interest 
rates in different nations, and sometimes to the conscious 
manipulative operations of the leading central banks of issue, 
considerable and frequent disparities in a nation’s trade bal- 
ance with the rest of the world can be offset by the shifting 
of bank credit, without resort to gold shipments. 
The international shifting of bank credit to right a nation’s 
unbalanced trade relations with other countries is therefore not 
only swift and efficient but indispensable in the modern world. 
Nor are its possibilities yet fully developed. The international 
reparations bank established by the Young plan will presum- 
ably fill a useful function in just this respect. Closer coopera-