Assume now that the silk has been put aboard ship bound for the United States, that the shipper has drawn, say, a draft for £1,000 at four months' sight on the Guaranty Trust Co., London, and has attached thereto the bill of lading and the insurance certificate. Taking this draft around to his bank the shipper sells it for local currency at the then prevailing rate for four months' sight drafts drawn on London. The fact that it is drawn at four months' sight means that he will get a lower rate of exchange for it than if it were drawn payable on demand, but that was the arrangement with the buyer in New York—that the drafts against the silk were to have four months to run.
Having sold this draft to his bank in Canton and received local currency therefor, the shipper of the silk is out of the transaction. He has shipped the goods and he has his money. What becomes of the draft he drew is the next important point to consider. But so far as the exporter is concerned, the transaction is closed, and he is ready for the next operation.
The silk has now been set afloat for New York, and the draft purchased by the Canton banker is on its way to London for acceptance. Long before the silk gets to New York the draft will have reached London and will have been presented to the cashier of the Guaranty Trust Co., there, who, of course, was apprised of the credit opened on his bank at the time such credit was originally issued in New York. Examining the draft and the documents carefully to see that they conform with the terms of the credit, the cashier of the Guaranty Trust Co., London, formally "accepts" the draft, marking it payable four months from the date it was presented to him. The accepted draft he hands back to the messenger of the bank who brought it in; the bill of lading, insurance certificate, and invoice he keeps. By the next mail steamer he dispatches these papers to the banker in New York who issued the credit.
For the time being, at least, that is to say, till the accepted draft comes due, the London banker is out of the transaction, which is now narrowed down to the importer of the silk in Paterson and the banker in New York who issued him the credit.
Assume now that a week has passed and that the New York banker finds himself in possession of a bill of lading for ten bales of silk, merchandise deliverable to his order. A few days later, perhaps, the goods arrive overland by fast freight from Seattle. The Paterson silk manufacturer, who is eagerly awaiting their arrival, comes around to the banker: "Endorse over the bill of lading to me," he says, "so that I can get the silk and start manufacturing it."
If the banker does it, he will be giving over the only security he has for the payment at maturity of the draft his London correspondent accepted, and for which he himself is responsible. Still, the manufacturer has to have his silk.
A number of different agreements exist between bankers and importers to whom the bankers issue credits, as to the terms on which the importers are to be allowed to take possession of the merchandise when it arrives here. Sometimes the goods are put into store and handed over to the merchant only when he shows that he has sold them and needs them to make delivery. Sometimes they are warehoused at once, and parcelled out to the importer only in small lots, as he needs them. But more often the goods are delivered over to the importer on his signing one form or other of what is known as a "trust receipt."
Form of Trust Receipt
