Principles of Exchange
To find the cost of a draft, the face and rate per cent of exchange being given.
Rule.—Find the percentage of the given rate per cent of exchange and add it to, or subtract it from the amount of draft.
Example: What is the cost, in Chicago, of a sight draft on Denver for $400, if exchange is 3⁄4% premium; and how much if 1⁄2% discount?
$400 × .003⁄4 = $3; $400 + $3 = $403, at 3⁄4% premium.
$400 × .001⁄2 = $2; $400 - $2 = $398, at 1⁄2% discount.
To find the face of a draft, cost and rate per cent of exchange given.
Rule.—Divide by the cost of a draft for $1, at given rate per cent of exchange.
Example: Find face of draft that can be bought for $1000 at 1% premium; at 1% discount.
$1000 ÷ 1.01 = $990.10, at 1% premium.
$1000 ÷ .99 = $1010.10, at 1% discount.
Time Drafts, when negotiated before maturity, are subject to discount which is computed on the face of the draft, the same as interest.