THE FOREIGN EXCHANGES 227

domestic exchange, where the currencies are, of course,
identical. Thus the quotation in Chicago of funds payable
in New York is made as so many cents of premium or discount
 per thousand dollars. “Similarly, the exchange between
Australia and London is quoted in this fashion. But it is a
common, in fact a general, occurrence for bills to be drawn
in the currency of the country in which they are to be paid
and sold, in the country in which they are drawn, for money
of a different currency. The movements of price are not
then expressed by stating that a certain fraction more or less
than the face-value is paid for bills, but by stating how much
of the one currency must be paid, or may be purchased, for
cach unit of the other currency. These figures are called the
rates of exchange between one country and another. The
rate of exchange, therefore, depends on the relation between
the supply of bills and the demand for means of making
remittances, Dear rates tend to check demand and stimulate
supply, and cheap rates tend to enlarge demand and restrict
supply. Let us examine this statement somewhat more
closely.

{t must be remembered that the profit on an international
commercial transaction depends on the rate at which exchange
can be bought or sold, as well as on the prices of the commodities
 entering into the transaction. The exporter, before
he can be sure of a profit, needs to know not only the cost of
his shipments, the price secured for them, and the freight
and other connected charges, but he also needs to know
what price in domestic currency he can secure for the bill,
drawn in foreign currency, by means of which he gets payment.
 A movement in this price may destroy a profit or
create one. Where the movement is one making the foreign
currency worth more in domestic currency, exporting
transactions not profitable before become profitable, and bills
increase in supply. Similarly, the opposite movement
restricts exportation and checks the supply of bills, It is
convenient, too, to notice here that a fall in price of exportable
 commodities in the exporting country tends to the
more abundant creation of bills, a fall in the importing
country to a scantier supply of bills coming forward, A