THE FOREIGN EXCHANGES 229

a simple point, is the elucidation of the reasons why many of
the important rates of exchange can vary only within a
narrow range, and the determination of the conditions which
govern the extent of the range. Let us consider, then, the
exchange between two countries each having a gold-standard
currency.
It was shown above that dear rates for exchange act as a
stimulus to export, unless the level of commodity prices
counteract the effect of dear exchange. Should the demand
continue strong, and the supply of bills be inadequate, the
tendency for exchange to get dearer will be maintained.
How dear can exchange become is the question. The
limit is found by reference to the fact that gold can always
be procured at a price approximately fixed, so that there
is a point of dearness of exchange which makes the export
 of gold profitable. Though the commodities usually
entering into the export trade be too high in price in the
exporting country, and too low in price in the importing
country, to make their shipment profitable, if the two
countries have gold-standard currencies, the value of gold in
terms of the currencies is substantially fixed in each country,
and therefore the movements of the price of gold are unable
to offset the influence of the rate of exchange in making a
shipment of bullion a profitable transaction. The expense
of procuring gold being fixed, and the expenses of transportation
 fixed, while the value which will be realised on the
other side is also fixed, the shipment of gold will be able to
provide the means of meeting bills drawn against it whenever
exchange is dear enough. When this point is reached, the
supply of bills will be able to be increased to meet the
demand, whether the produce markets are favourable for
export or not. Similarly, a point is determinable which will
make the importation of gold profitable.
To determine these “gold points” we must first define a
point called the “par of exchange.” It is commonly stated
that exchange is at par between two countries A and B when
the amount to be paid by A to B is equal to that which is
due to be paid by B to A. This means that when the
demand for bills is equal to the supply, the exchange is at