4. The principle of Foreign Exchange is exactly the same as that of Inland Exchange. But there is somewhat more complication in the detail, on account of the different moneys of different countries.

In Exchange between two foreign places and of different moneys, the money of one place is always taken as fixed, and the Exchange is reckoned in the variable quantities of the money of the other given for it. The former is called the fixed or certain price, and the latter the variable or uncertain price.

Thus between London and Paris the £ is the fixed price and the Exchange is reckoned in the variable sum in francs and cents given for it.

On the contrary, between London and Spain the Exchange is always reckoned by the variable sum in pence given for the fixed dollar of exchange.

When a certain place is taken as a centre, if the fixed price is the money of that place it is said to receive the variable price: on the contrary when the money of that place is the variable price, it is said to give the variable price.

Thus at any time London receives from Paris so many francs and cents for the £1 sterling; and London gives Spain so many pence for the dollar.

In the quotation of the Rates of Exchange it is usual to omit the fixed price, and name only the variable price, and then that is called the Rate or Course of Exchange,

According to Tate's Modern Cambist the following are the present Rates of Exchange between London and the principal Foreign cities -

London receives from

Amsterdam

11·19 Florins and stivers ..

for £1.

Germany .

20·43 Imperial marks and pfennigs •

,, 1

France

25·30 Francs or lire and cents. . .

„ 1

Italy .

Belgium

Switzerland

Austria

10·35 Florins and kreuzers

„ 1

London gives to

Lisbon

53 1/4 pence sterling for .

1 Milreis.

Spain

50 1/4 ••

1 Hard dollar.

Gibraltar .

40 1/2 „ „

St. Petersburg .

37 1/2 „ ,,

1 Silver rouble.

Rio Janeiro

26 1/2 „ „ .

1 Milreis.

New York .

49 1/2

1 U. S. dollar.

Calcutta

23 ,, „ . .

1 Government rupee.

The above are the Mint Par Rates: but in Austria, Italy, and the United States, these Rates are deranged by the Paper Money of each country: at the present moment the Exchange on Italy is about 29·50: on Austria about 11·50: and on New York about 45·.

Now if the Exchange of London on Paris is against London, or the demand in London for bills on Paris is greater than the supply, it is clear that the £ sterling will purchase fewer francs. Hence between London and Paris when the exchange is adverse to London the Rates of Exchange will fall below par.

On the contrary, when the Exchange is favourable to London, that is the supply greater than the demand, the Rate of Exchange will rise above par.

And the same is manifestly true with respect to all other places from which London receives the variable price.

But if the Exchange between London and Spain is against London, or the demand in London for bills on Spain is greater than the supply, then London will have to give more pence to purchase the Spanish dollar.

Hence between London and Spain, when the Exchange is against London, the Rate of Exchange will rise above par.

On the contrary, when the Exchange is favourable to London, she will have to give fewer pence to purchase the Spanish dollar, and consequently the Rate of Exchange will fall below par.

And the same is manifestly true with respect to all other places to which London gives the variable price.

Hence when the Exchange between London and any other place varies from par, we must always consider whether London gives the variable price to, or receives it from, that place.

The interests of the buyers and sellers of bills are always opposite. If the Rate of Exchange is favourable to the one, it is equally adverse to the other. The buyers of bills are also called remitters, and the sellers are also called drawers.