Thus though one sovereign is always equal to 25·22 francs, coin for coin, yet the price of bills expressed in these coins will vary within certain limits according to demand and supply.
The exchange in London on Paris, or any other centre, will always tend to keep approximately level with the exchange at that centre on London. As an illustration, let us take an extreme case. Suppose we quoted Paris at 25·20 and Paris quoted us at 25·30. A foreign banker in London, on seeing these quotations, would wire to his Paris correspondent to draw on him for, let us say, £1,000 and sell the draft, which would realise 25,300 francs. At the same time he would draw on his Paris friend for 25,300 francs and sell the draft in London, for which, at the rate of 25·20, he would receive £1,004 nearly. The Paris correspondent would be cleared, as he has drawn and sold a draft for 25,300 francs, and he has paid a draft drawn on him for the same amount; but the foreign banker in London has received £1,004, and only has to provide £1,000 to meet the draft drawn on him, leaving a profit of £4. He would not be the only one to perform this little operation, however, and the combined action of all such arbitrage dealers would promptly level quotations.
We will now turn our attention from theories to some actual facts, and examine how the business in foreign bills is conducted in London. The usual meaning of the term “Bourse” or “Exchange” is a place where merchants assemble to transact their business. We have our own famous Royal Exchange, although nowadays it is hardly famous for the meetings of merchants. It is a building which has survived its original purpose, but it is of interest as being an historic relic of the place where the foundation of our great commercial supremacy was laid.
In the early part of the sixteenth century the London merchants met at regular times at some rendezvous in Lombard Street to transact their business. As their transactions and the number of the merchants represented increased, inconvenience arose, and in 1564 Sir Thomas Gresham offered to erect a suitable building for the merchants’ meeting house if the City would provide the site. This offer was accepted, and the land where the Royal Exchange stands was purchased by a subscription of the citizens—a Mansion House fund. The edifice was duly built, and opened for business in 1571 by Queen Elizabeth. It was unfortunately destroyed by fire in 1666; rebuilt, and again destroyed in 1838. The present building was then erected, dating 1844, and the late Queen Victoria attended in state to open it, as is commemorated in one of the pictures exhibited in the building. The opening of the first building by Queen Elizabeth is the subject of another of these pictures.
The merchants in various trades used to assemble in groups, in corners and round the various pillars of the building; but it very soon became too small for this purpose, and as the various groups waxed bigger and wealthier, they gradually deserted the building and erected exchanges of their own, such as the Stock Exchange, Coal Exchange, Hop Exchange, Metal, Wool, Corn, etc., exchanges. At the present day the Exchange is used only by the money merchants and a few dealers in some of the less important industries who occasionally meet there in the afternoon.
The money merchants hold their meetings in the Royal Exchange on Tuesdays and Thursdays, which days are called “post days.” This term is a survival of the times when the foreign mails were despatched only twice a week.
The principals of the great foreign banking houses and a few brokers are the only persons who attend “’Change.” As a result of the business then effected and the negotiations entered into, certain rates of exchange are arrived at as the ruling rates of the day. After the meeting the brokers publish a list of these rates, which is called the “Course of Exchange.” A specimen “Course of Exchange” is here appended:—
| Tuesday, September 8th, 1903 | |||
|---|---|---|---|
| Time. | Prices as Negotiated This Day. | ||
| From | To | ||
| Amsterdam, Rotterdam, etc. | Short | 12·06½ | 12·07¾ |
| Ditto | 3 Months | 12·3¾ | 12·4½ |
| Antwerp, Brussels, etc. | ” | 25·37½ | 25·42½ |
| Paris | Cheques | 25·17½ | 25·18½ |
| Ditto | 3 Months | 25·32½ | 25·37½ |
| Marseilles, Lyons, etc. | ” | 25·32½ | 25·37½ |
| Zurich, Basle, etc. | ” | 25·35 | 25·40 |
| Hamburg, Berlin, and German Bank Places | ” | 20·58 | 20·62 |
| St. Petersburg | 3 Months | 24¹⁵/₁₆ | 25¹/₁₆ |
| Moscow | ” | 24¹⁵/₁₆ | 25¹/₁₆ |
| Vienna, etc. | ” | 24·17½ | 24·22½ |
| Madrid | ” | 34¼ | 34½ |
| Other Spanish Bank Places | ” | 34¼ | 34½ |
| New York | Demand | 48·6½ | 48·7 [4] |
| Ditto | 60 Days | 48¹¹/₁₆ | 48¹⁵/₁₆ |
| Rome and Italian Bank Places | 3 Months | 25·40 | 25·45 |
| Lisbon and Oporto | ” | 42 | 42⅛ |
The rates quoted in the table indicate the number of foreign coins given for one sovereign, with the exception of those on Spain, Portugal, Russia, and the United States. For Spain the quotation is the number of pence given for the peso, for Portugal the number of pence for a milreis, for Russia the number of pence for a rouble, and for America the number of pence for a dollar.
In London all rates are quoted as they are quoted at the foreign centres on London, with the exception only of Spain, where London quotes so many pence to the peso, while Spain quotes piastres to the £1; Russia, where we quote so many pence to the rouble, and Russia so many roubles to £10; and New York, where we quote so many pence to the $1, while New York quotes so many dollars to the £1. With regard to the New York quotation, however, London now as frequently uses the quotation of dollars to the £1 as pence to the dollar.