The work of the Stock Exchange

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Monograph

Identifikator:: 1831284952

URN:: urn:nbn:de:zbw-retromon-225876

Document type:: Monograph

Author:: Meeker, James Edward http://d-nb.info/gnd/126597340

Title:: The work of the Stock Exchange

Edition:: Revised edition

Place of publication:: New York

Publisher:: The Ronald Press Company

Year of publication:: [1930]

Scope:: XVI, 720 Seiten; Illustrationen, Diagramme

Digitisation:: 2022

Collection:: Economics Books

Usage license:: Get license information via the feedback formular.

602 APPENDIX (VIIb) The fluctuations in the value of money become most ap- parent when the money side of a sale is shifted from the currency of one nation to that of another, at the prevailing rates for the foreign exchange involved. When in the spring of 1920 the German mark rose for a time from 1}% to 2% cents, many German exporters who had purchased goods on credit from German producers for foreign delivery and who had, consciously or unconsciously, gone short of money in so doing, suffered severe losses. To take an imaginary but quite typical instance, a German export house, let us say, had purchased a consignment of potash from a German company for 400,000 marks, paying 100,000 marks (or a 25- point margin) down on the transaction. This potash the German ex- porters agreed to sell to an American firm in New York for $7,500— the equivalent of 500,000 marks at the rate of exchange (1 mark = 114 cents) then prevailing. The German exporters naturally expected a profit of 100,000 marks in the sale. But, as has been pointed out, the German exporters were forced to go short of money at the same time they bought the potash on margin. During the time elapsing between the receipt of the potash by the German exporters and its delivery by them in New York the value of the potash does not change, but the value of the German mark rises from 1% to 2% cents. Ob- serve the result. The $7,500 paid by the American house is exchanged at 214 cents per mark for only 300,000 marks, instead of 500,000 marks expected under the old rate of 15 cents. ‘In consequence of this rise in marks, of which the German exporters had gone short, the latter not only do not make their expected profit of 100,000 marks, but in addition lose their margin of 100,000 marks and are barely able to pay the German producers the 300,000 marks still owed to them. (VIIc) Before the establishment of the Federal Reserve system, the call loan market on the New York Stock Exchange constituted the only central liquid factor in American banking. During a bank- ing crisis, American banks would, therefore, almost unanimously “call their loans,” to place themselves in liquid position. The remarkable thing about this old system was that the call loans were always so safe from the lenders’ standpoint. But the maintenance of such safety imposed a terrible burden and risk upon the borrowing brokers and their customers, and on call loan interest rates. Few cases ever oc- curred where a Stock Exchange member could not in the long run get a loan on good securities. But the interest rates soared in the process to sometimes fantastic figures. In the panic of 1907, a few loans were even made at 1259, per annum! Needless to say, however, these were retired in a few days.

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