ABSTRACT
The Foreign Exchanges deal with the rates at which the currencies of the different countries exchange for one another; for instance, the number of francs which can be obtained for £i and vice versa. It is at first difficult to see why this rate of exchange should vary. The matter will be made clearer, in the first place, by considering what happens when a person wishes to make a payment to another residing in a different part of the same country ; when a Londoner, for instance, wishes to make a payment of 12s. to a resident in Manchester. We will suppose that he makes the payment by means of a postal order. He pays 12s. id. to the Post Office in London, for which he receives a piece of paper, which he posts to Manchester. The recipient in Manchester takes the piece of paper to a Post Office in Manchester and receives for it 12s. That is, I2s. id. is received by a Post Office in London, and 12s. is paid out by a Post Office in Manchester. But the reverse process is also taking place; other people are buying postal orders in Manchester and sending them to London. If, however, larger payments are being made by postal order from London to Manchester than in the reverse direction, then the postal authorities will have to send cash from London to Manchester, This service of sending cash to the parts of the country where it is required is performed by the Post Office and the banks for a fixed charge. There is no similar arrangements as between different countries. There is also a further very important difference. If the Post Office and the banks did not under take to exchange cheques and postal orders into cash in the parts of the country where it is required, it would be
possible to send cash by registered post. A Treasury note can be exchanged for goods in Manchester in the same way as in London, but an English Treasury note is not legal tender in Paris, and is only useful to make a payment there because bankers and others will buy it in order to sell it again to those who require English money. The only people in Paris who require English money are tho^e who have payments to make in England.
