It is to the interest of merchants or bankers who deal in foreign bills to buy them where they are the cheapest and to sell them where they are the dearest. For this reason it might often be an advantage for a New York merchant to buy a bill on London to pay a debt in Paris.
Two illustrations of bills of exchange are given in this lesson. Each is drawn in duplicate. The original is sold or sent abroad, while the duplicate is preserved as a safeguard against the loss of the original. When one is paid the other is of no value. Notice the similarity between bills of exchange as shown here and commercial drafts as shown in our last lesson.
The first form shows a draft made by a coal company upon a steamship company to pay for coal supplied to a particular steamer. Suppose that the steamship company has a contract with Robert Hare Powel & Co. of Philadelphia to supply coal to their steamers. The steamer Cardiff, when in port at Philadelphia, is supplied; the bill is certified to by the engineer; the master (captain) of the vessel signs Powel & Co.'s draft (and in doing this really makes it the captain's draft); the bill is receipted. Now Powel & Co. sell this exchange (draft) on London to a broker or banker doing a foreign business. It is forwarded to London and presented in due time at the office of the Wales Navigation Company for payment.
The second form shows a bill of exchange drawn by a Philadelphia banking house upon a London banking house and payable to the order of the firm buying the draft. C. H. Bannerman & Co. will send this bill (the original) to pay an account in Europe. The first form bears the same relation to a commercial draft that the second does to a cashier's cheque.
