514 THE WORK OF THE STOCK EXCHANGE
mint par rate. Similarly, if more dollar drafts are demanded
than offered in London, dollars will tend to buy more pounds
and pounds fewer dollars so long as this condition remains.
The same rate of exchange is maintained in both London and
New York through constant arbitraging between the two
centers by foreign exchange dealers all over the world.
In New York and London, rates of foreign exchange with
the home currency are made and quoted individually by the
leading banks and financial firms engaging extensively in this
business. In Paris and Berlin official dealings and quotations
in foreign exchange occur on the stock exchanges. Neither
the London nor the New York Stock Exchange concern them-
selves with dealings in foreign exchange.®
In practice, the fluctuations in foreign exchange rates
between two gold standard countries usually occur within the
so-called “gold points,” which are rates respectively above and
below the par rate of exchange for the given foreign currency.
The difference between the par rate of exchange and either
gold point represents the cost of shipping gold between the two
countries. For this reason, should British sterling drop below
its lower “gold point” in terms of American dollars, it would
at once become cheaper for the British to make payments in
America by shipping gold thither rather than by purchasing
American bank credit in the form of bills and drafts drawn
in dollars at the unfavogable current exchange rate. Con-
versely, should British sterling rise above its upper “gold
point” with American dollars, British credit in sterling would
at once prove more expensive for Americans than gold ship-
ments to Great Britain. When a nation is not upon the gold
standard, no such gold points, of course, exist and its rate of
exchange with foreign gold currencies may fluctuate wildly
unless artificially “pegged” or stabilized in some way. These
principles were strikingly illustrated by the experience of many
European currencies during and after the World War.
Since all goods and services sold in foreign trade must be
"5 See Appendix XVIII.
