242 ECONOMIC PRINCIPLES

are usually not largely affected by the temporary ups and
downs of wholesale prices, but prolonged and important
movements in the latter are. in due course, reflected in the
former.
The attention of the reader has been directed in this
chapter to the making of international payments in the most
direct fashion. Just as it was pointed out that a triangular
course of commercial transactions might take place, and does
take place, so in the handling of the means of payment may
indirect operations occur. It is not unfrequently possible to
pay by an indirect course more advantageously than by a
direct one. Thus, in particular, in connection with trade
between America and Europe, London serves as a settling
centre. Payment for goods shipped to continental centres
from America may be made by draft on London, and American
shippers may draw on London houses instead of on the
countries to which they ship. Thus the indirect course of
payment through London takes the place of bills drawn
directly. The indirect course is adopted when it offers
advantages in a lower cost of remitting. The operation of
effecting payment in this indirect fashion is known as an
arbitrage operation. It is clear that the effect of arbitrage
transactions is to keep the various rates of exchange in close
correspondence to one another. It is the occurrence of a
less close correspondence than usual which makes it possible
to secure a profit on an arbitrage operation.
In the language used throughout the chapter, a course of
business has been assumed which sufficiently well illustrates
the manner in which bills of exchange arise, and the leading
influences which operate in the determination of the rates of
exchange. It is not within the scope of this volume to enter
into the various modes of effecting payment which are used,
and the drawing of a bill against exports and remitting for
imports are sufficiently typical of the two aspects of the
principal mode employed. In its application to English
trade, it is well to note that it is more usual for bills to be
drawn on England than for English merchants to draw on
foreign centres. The price of bills is more influenced,
therefore, by transactions in the foreign centres where they