WE next have to consider the fourth of the six factors which influence exchange rates : interna-tional loans and credits. Such loans and credits may be either private or public. It may be for example that a merchant in Brazil seeks accommodation in London, or it may be that the Brazilian Government floats a loan in London. We may take a case which combines the features of both in order to show how it works : the case of a Brazilian municipality raising a loan in London through a London financial house. The loan may be made in one of three forms. In the first place it may be made through an issuing house, i.e. one of those houses which specialize in placing foreign bonds on the market. The house sells the bonds on behalf of the municipality, people here will subscribe for and receive the bonds, paying the issuing house sterling therefor, and the latter places the money to the credit of the municipality in a London joint-stock bank. Let us say the loan has been raised in order to build a local tramway. The contract for rolling stock, rails, overhead, etc., is placed by the municipality with a well-known British firm. When the goods are ready to be shipped, the municipality instructs

the bank which holds its funds to pay the amount to the suppliers' invoice against shipping documents. The effect of the raising of the loan has been to enable the Brazilian municipality to pay for the British manufactures it requires by utilizing British credit facilities. Another way in which the same end might be attained would be by way of a merchant bank. In this instance one of the London merchant bankers agrees with a Brazilian municipality to accept bills drawn upon themselves up to a certain amount. The material is ordered, the contractors draw on the merchant bankers, and the latter pay. In a third instance the loan may be issued through an accepting house: in this case the accepting house gives authonty to the municipality to draw upon themselves up to a certain amount. In this case the credit is a blank credit. The municipality have the right to draw on the accepting house up to let us say £10,000. When the material is· shipped, the amount the municipality has to paythroughits Londonagentsis£8,500. The agents draw £9,000, the accepting house accept the bill, the agents discount it with a London bank, and pay the suppliers out of the balance thereby created.