THE THEORY OF EXCHANGE 139 
influence the exchange market. But although the state of 
international indebtedness may—in view of the object for 
which bills are bought and sold on the market—appear to be 
logically the only factor likely to influence supply and de- 
mand, and therefore the rate at which they are negotiated, 
it is common knowledge that once an exchange is un- 
settled a number of other factors may affect the rate, such 
as the economic outlook, and in particular the supposed 
state of the fuzure balance of payments, the Budget situa- 
tion ; and even purely political or social events play a large 
part, and, as we have seen in studying the post-war ex- 
changes, may gradually acquire a decisive influence. 
The effect of such diverse factors is explained, in the 
first instance, by the influence of speculation. A section of 
the exchange market usually deals in drafts which fall due 
on some distant date. Again, countries with a depreciated 
currency have recourse in the absence of means of pay- 
ment to credit in order to get over periods in which the 
bills drawn on foreign countries are not sufficient to cover 
purchases abroad. And this credit may take different 
forms, such as bank advances, money owed by foreign 
countries and left on deposit, instead of being repatriated, 
and even the purchase by foreign countries of inconvert- 
ible bank-notes, which are hoarded in the hope of a rise in 
the rate, before they are returned to the country of origin 
in the form of payments. 
And so we see that the rate of exchange no longer de- 
pends solely on the indebtedness arising from previous 
commercial, financial or other transactions, but also on the 
comparative ease in obtaining credit which, once given, 
neutralises recoverable debts and, once withdrawn, swells 
the debit side of the account. Thus credit, and therefore 
speculation, are likely to have the effect of supporting the 
exchange and sending it up, if confidence abroad is main- 
tained, or on the contrary of precipitating a crash if there 
is a panic. Lastly, speculation is the medium through 
which all those factors, even the most imponderable, which 
influence dealers in foreign exchanges affect the rate. 
We have seen in a previous chapter the important part