226 
INTERNATIONAL TRADE 
relations between the Canadian banks on the one hand and those 
of New York and London on the other. 
The nearest great financial center is New York, and the closest 
connections are with New York. As is always the case with out- 
lying institutions, balances of the Canadian banks are kept in the 
metropolitan banks — in this case chiefly the banks of New York — 
and such balances constitute a “secondary reserve.” The course 
of events in the mechanism of the lending operations would then 
be in general as follows. A loan would be negotiated in London, 
and funds there would be put at the disposal of Canadian borrowers. 
The Canadian banks would be informed of the successful London 
loan, and would be in turn ready to extend accommodation without 
delay to their clients at home. The funds available in London 
might be left there temporarily, to be remitted to Canada or 
New York, as might be desired; more commonly they would be 
transferred to New York, there remaining at call until transferred 
further to Canada. The Canadian banks could and would expand 
at once. Gradually, however, they would find their cash holdings 
not in accord with their swelling demand liabilities. They would 
draw on their New York correspondents for remittances; and thus 
finally the gold would flow into Canada which made possible the 
continuing expansion. 
As is to be expected under conditions of this kind, the Canadian 
rate of exchange on New York — the price of New York funds in 
Montreal and Toronto — tended thruout the period to be favor- 
able to the flow of specie into Canada. New York exchange was 
commonly at a discount in the Canadian cities, and Canadian 
exchange commonly at a premium in New York. Here, as in all 
the operations of the international exchange market, the transac- 
tions, tho in general associated with the remittances to Canada, 
sometimes turned the other way; exchange fluctuated and specie 
movements were irregular. But the same underlying trend per- 
sisted thruout our period. The steady continuation of this 
process — expansion in Canada, rising loans and deposits, reserves 
becoming again and again too scant, a rate of foreign exchange 
tavorable to Canada, the replenishment of the reserves again and