238 ECONOMIC PRINCIPLES

concerned, at the rate current in the market on which the
bills are drawn, greater if long bills are the cheaper, less if
demand bills are the cheaper. Bills payable at sight tend to
be dearer than three months’ bills by just this amount,
together with the stamp duty on the long bill and some
allowance for any risks which the deferment of the date of
settlement involves.
If bills with a certain period to run before their due date
be purchaseable cheap, they may serve to afford the means
of procuring funds at once. They may be sent forward and
discounted in the market on which they are drawn. Should
a given outlay yield a larger result in this way than by the
purchase of sight bills, the enquiry for long bills will raise
their price till they yield the same sum as an equal investment
 in sight bills. It is here clear that the borrowing of a
sum of money in the market on which the bill is drawn is
what is effected by forwarding long bills for discount, and
the cost of borrowing that sum is, therefore, the natural
measure of the difference in price of the long and sight bills.
The buyer of long-dated paper who holds it to maturity
lends its value to the seller for the interval. The prospects
of the exchange market later on, when he will be using the
draft as a remittance, must therefore enter into his calculations.
 If, for example, demand drafts fell to the price he
had paid for his long-dated bill, he would have lain out of
his money in the interval without recompense.
The discount rate is one of the chief instruments employed
 to influence the rates of exchange, at any rate when
gold shipments are in question, the export of metal being
checked, or stopped, or converted into an import as the
result of sharp movements of the rate of discount. The
reasons for this action of a movement of the discount rate on
the demand for gold for export are twofold, the one as
affecting the creation of obligations requiring the payment of
money, the other as affecting the postponement of the date
of payment.
As to the first, when the rate for loans is raised, buyers
of produce or securities are checked in their operations in so
far as they are effected with borrowed funds. As it costs