When a vessel is completely loaded the master must, before being allowed to sail, receive his clearance papers from the port authorities. The permit to sail is based upon the captain's report of cargo and passengers, payment of dockage, pilotage, seamen's wages, etc. When these are satisfactory, permission is given to sail.

International trade, or the exchange of commodities between nations, requires a medium by means of which resulting balances can be satisfactorily settled. The ultimate medium adopted for this purpose is pure gold, and this metal is the basis of all calculations in connection with foreign exchange. Of course for practical purposes the metal must have an alloy, and each nation has determined the quantity of base material employed independent of other countries, but nevertheless they are all pretty nearly in unison. The general system employed is 9-10ths pure gold and l-10th alloy, with the exception of Great Britain, which uses 11-12 and 1-12. A further circumstance is the legal value placed upon the metal, thus giving assurance for all time that its value will be stable; and it is this officially made stability which renders it possible to determine the value of the money of one country in that of another. The value of gold in the following countries as determined by law is. respectively:

Great Britain, 1 oz.,                     ll-12ths fine = 77/10

United States, 25 8-10ths grains, 9-10ths fine, $1.00 Germany, 122.915 grains,        9-10ths fine, M. 20

Latin Union, 99.561 grains,        9-10ths fine, F. 20

Taking these gold values as a basis we arrive at the following interchangeable values of the various coins:

Legal Value of Gold

One pound sterling weighing 123 27-100 grains 11-12 fine equals $4.8665, equals Fc 25.2215, equals Marks 20.4296. This is what is termed the mint parity, or the value at which the respective mints in London, Washington, Paris and Berlin, would accept the coins of each of the other nations.

The following weights of the principal coins of the four above-named nations, will enable the student to follow out the calculation for himself:

1 Eagle or $10 = 258 grains, 9-10 or 232 grains pure gold. Sovereign, £1, = 123.270 grains, 11-12 or 113 grains pure gold. 1 Double Crown, or M. 20 = 122.915 grains, 9-10, or 110.624 grains pure gold.

1 Napoleon or Fc. 20 = 99.661 grains, 9-10, or 89.605, grains pure gold.

The foregoing is the fundamental basis of foreign exchange, and with these principles firmly grasped, the various ramifications of the business are readily understood.

In the early period of international commerce, when each European principality coined its own money and falsified and clipped it according to the needs and exigencies of its petty sovereign, the only international medium of exchange was the promissory notes of the great merchants of the middle ages. These notes circulated the year around as money, and were payable as a rule on certain days at certain cities where the great annual fairs were held, and were redeemable at fixed values in silver. A striking instance of the power wielded by these merchant princes is to be found in the history of the steelyard in London, a settlement of Hansa merchants in the city, making their own laws and governed only by their own rules and traditions, regardless of the laws of the land whose hospitality and protection they enjoyed. The pound of silver was the measure of value, but the pound of silver was an unknown quantity unless it was designated in the bond as a pound of silver of the Esterlings, or strangers - hence the origin of the term Pound Sterling, which has subsequently been adopted as the denominational standard of value of Great Britain. Modern legislation has remedied all the defects of the earlier systems, but a recital of former conditions is none the less interesting as an introduction to our present methods, which are the fruits of evolution and have been placed upon a scientific basis of fact.

Goods are being transported from one country to another, and this is the natural method of liquidating an international indebtedness. This failing, recourse is had to the transfer of credits arising out of former transactions, and as a last resort, refuge is had to shipping bullion or minted coin. Let us follow a shipment of hardware from England, valued at say $1,000, to South America, where for argument's sake it has been disposed of for $2,000. Instead of remitting the money to England and sending the ship back empty, the agent of the English merchants purchases hides, which are forwarded to France, as the best market, and are there sold for $4,000. The ultimate result of this transaction is that France owes England a debt of $4,000 which must be liquidated in either of the foregoing methods. Now the probabilities are that goods will be forwarded to England and there disposed of at a profit. We have assumed that this train of transactions has been carried on by one merchant and his agents, but this is not the modern way, and it is here that international banking steps in as the connecting link between each transaction, but the ultimate liquidation has taken place by the shipment of merchandise notwithstanding. In each case the banker has been called upon to provide the funds and the buying and selling of the bills of exchange is what constitutes the liquidation. But, nevertheless, the exchange of merchandise is the essence, hence it is clearly demonstrated that the economical method of liquidating an international trade balance is through the sale of commodities.

International Banking

Liquidation of

International

Indebtedness

This constant interchange of commodities creates credits and debits and foreign transactions are carried out primarily with a view to adjusting these balances. The debits are set off against the credits, and only the balance is left for settlement in money. A merchant shipping goods to a foreign port desires reimbursement therefor immediately the goods are loaded. He therefore draws on the purchaser, attaches to the draft all evidences of the shipment, and negotiates the draft through his banker. He here incurs a risk that on arrival the purchaser may be insolvent, or for specious reasons may refuse to accept the goods, thus entailing loss and perhaps ruin, consequently this method is only adopted where the shipper is well acquainted with the purchaser's financial standing. Otherwise he requires a bank credit - i. e., an undertaking on the part of a bank that his drafts if drawn under certain conditions will be promptly paid. We will say the above shipment was made to Germany, but the banker negotiating the bill has no use for funds in that country, but desires the money in London. Now any number of courses are open to him, which will enable him to place the money to his credit in London. He can send the bill of exchange to his Berlin bankers for discount, if it is a time bill, and instruct them to buy a transfer on London; or he can remit the bill direct to London and sell it in the open market; or he can have his Berlin bankers buy French exchange and remit this to London for sale, or purchase therewith in Paris transfers on London. There really is no end to the combinations that can be made, but for all practical purposes there are very rarely more than three, and those under very peculiar conditions; but the writer recalls one particular transaction which required the intermediary of four financial centers before it was brought to a satisfactory conclusion. This method of adjusting balances is called arbitrage, or arbitration, and is quite common among foreign bankers; in fact by some is made a special feature of the business.