Customer’s Accounts Collected
Branch Report to Head Office
Branch A Expenses[69]
Head Office Ledger Account—
Summary of Branch Expenses
CHAPTER XXXI
BRANCH HOUSE ACCOUNTING
(Continued)
Foreign Exchange
The foreign trading of American firms has grown of late years to such proportions that a practical acquaintance with the exchange values of foreign currencies is necessary for the accountant. The rate of exchange is the equivalent of the currency of one country in that of another. For instance, the standard value of the British sovereign in the currency of the United States is $4.8665; that is, the value of the quantity of pure gold in one sovereign in London is equal to that represented by $4.8665 in New York. Other things being equal, this should always be the par rate of exchange between the United States and England. The question of the rate of exchange between countries which have a gold standard is a comparatively simple matter. Where one of the countries has a silver currency, the variations assume more importance, for the reason that the intrinsic value of silver converted into gold must be accounted for. Paper currency, especially in times of war, causes a still greater complication, because in this case it is uncertain when such paper will be made convertible into gold or silver.
In addition to differences in exchange arising from the conversion of one currency into another, called the par rate, other things enter into exchange transactions which have a marked effect upon the actual, or market, rate of exchange. Such conditions as supply and demand for remittances between countries to satisfy debit balances; the necessary expenses, including cost of transmission (which can never be more than the actual cost of transporting the specie itself): interest on the money for the time the draft has to run to maturity or to the time of payment in the foreign country—these and other factors must be taken into account. The expense of cabling and the profits of the bankers who transmit the money must be added. Some intangible factors are the credit condition of the countries and the risks involved in making transfers.