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 demand,
 and therefore the rate at which they are negotiated,
it is common knowledge that once an exchange is unsettled
 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 situation
 ; and even purely political or social events play a large
part, and, as we have seen in studying the post-war exchanges,
 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 payment
 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 inconvertible
 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 depends
 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neutralises recoverable debts and, once withdrawn, swells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 maintained,
 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