226 ECONOMIC PRINCIPLES

document requiring M to pay the amount due, after an
interval stated on the document. The bill is sold to Y or
some one acting for V, and thus Y pays X what is due to
him. VY or his agent sends the bill to country B, where it is,
in due time, collected from M, and N is paid out of the
proceeds. Thus M practically pays N what is due to him.
If a credit is established in a foreign country in any
other fashion than by exporting goods to that country, bills
can be similarly drawn and negotiated. We do not propose
to deal with practical details here. It is sufficient that the
mass of international obligations to pay find representation
in bills of exchange. Some of these are payable at sight,
and transfers are also made on telegraphic orders, including
both land telegraphs and ocean cables in the means of
communication used for this purpose. Other bills are only
due for payment at a date more or less remote, as three or
six months after sight, the period of currency, or usance,
varying with trade customs. For the purpose of dealing
with the conditions governing the current rate of exchange,
we will at first take account only of obligations maturing
immediately. Those who have payments to make will
desire to purchase bills, those who have payments to receive
will have bills to dispose of. As with other commodities, the
price of bills is dependent on supply and demand. As we
shall see later, the supply is affected by the prospects of the
future condition of the market, and that in a special fashion,
for the general statement, that present market conditions are
affected by the conditions of supply and demand which are
expected to prevail in the near future, is valid for a great
variety of goods. If the supply at current prices fails to
amount in the aggregate to the requirements for remittance,
prices tend upwards, and they tend downwards if the supply
at current prices exceeds the requirements for remittance
at those rates. A confusion may arise if the prices here
referred to are not rightly understood. Should the currency
of the countries in which and on which the bills are drawn
be identical, the bills may sell for more or less than their
face-value, and the prices are quoted as certain rates of
premium or discount. This mode of quoting is used in