The Sources of the Demand for Foreign Exchange[106]
Turning now to consideration of the various sources from which spring the demand for foreign exchange, it appears that they can be divided about as follows:
1. The need for exchange with which to pay for imports of merchandise.
2. The need for exchange with which to pay for securities (American or foreign) purchased by us in Europe.
3. The necessity of remitting abroad the interest and dividends on the huge sums of foreign capital invested here, and the money which foreigners domiciled in this country are continually sending home.
4. The necessity of remitting abroad freight and insurance money earned here by foreign companies.
5. Money to cover American tourists' disbursements and expenses of wealthy Americans living abroad.
6. The need of exchange with which to pay off maturing foreign short-loans and finance-bills.
1. Payment for merchandise imported constitutes probably the most important source of demand for foreign exchange. Practically the whole amount of our huge importations has had to be paid for with bills of exchange. Whether the merchandise in question is cutlery manufactured in England or coffee grown in Brazil, the chances are it will be paid for by a bill of exchange drawn on London or some other great European financial centre.