A poorly drawn cheque.A poorly drawn cheque.The illustration on page 8 shows a cheque carefully and correctly drawn. The signature should be in your usual style, familiar to the paying teller. Sign your name the same way all the time. Have a characteristic signature, as familiar to your friends as is your face.A cheque is a draft or order upon your bank, and it need not necessarily be written in the prescribed form. Such an order written on a sheet of note-paper witha lead-pencil might be in every way a legally good cheque.A carefully drawn cheque.A carefully drawn cheque.Usually cheques should be drawn "to order." The words "Pay to the order of John Brown" mean that the money is to be paid to John Brown, or to any person that heordersit paid to. If a cheque is drawn "Pay to John Brown or Bearer" or simply "Pay to Bearer," any person that is the bearer can collect it. The paying teller may ask the person presenting the cheque to write his name on the back, simply to have it for reference.In writing and signing cheques use good black ink and let the copy dry a little before a blotter is used.The subject of indorsements will be treated in a subsequent lesson.IV. BANK CHEQUES(Continued)The banks of this country make it a rule not to cash a cheque that is drawn payable to order, unless the person presenting the cheque is known at the bank, or unless he satisfies the paying teller that he is really the person to whom the money should be paid. It must be rememberedhowever, that a cheque drawn to order and then indorsed in blank by the payee is really payable to bearer, and if the paying teller is satisfied that the payee's signature is genuine he will not likely hesitate to cash the cheque. In England all cheques apparently properly indorsed are paid without identification.A cheque drawn so as to insure payment to proper party,A cheque drawn so as to insure payment to proper party.In drawing a cheque in favour of a person not likely to be well known in banking circles, write his address or his business after his name on the face of the cheque. For instance, if you should send a cheque to John Brown, St. Louis, it might possibly fall into the hands of the wrong John Brown; but if you write the cheque in favour of "John Brown, 246 West Avenue, St. Louis," it is more than likely that the right person will collect it.If you wish to get a cheque cashed where you are unknown, and it is not convenient for a friend who has an account at the bank to go with you for the purpose of identification, ask him to place his signature on the back of your cheque, and you will not likely have trouble in getting it cashed at the bank where your friend keeps his account. By placing his signature upon the back of the cheque he guarantees the bank against loss. A bankis responsible for the signatures of its depositors, but it cannot be supposed to know the signatures of indorsers. The reliable identifier is in reality the person who is responsible.INDORSING CHEQUESIn indorsing cheques note the following points:Write across the back—not lengthwise.If your indorsement is the first, write it about two inches from the top of the back; if it is not the first indorsement, write immediately under the last indorsement.Do not indorse wrong end up; the top of the back is the left end of the face.Write your name as you are accustomed to write it, no matter how it is written on the face. If you are depositing the cheque write or stamp "For Deposit" or "Pay to ______Bank______," as may be the custom, over your signature. This is hardly necessary if you are taking the cheque yourself to the bank. A cheque with a simple or blank indorsement on the back is payable to bearer, and if lost the finder might succeed in collecting it; but if the words "For Deposit" appear over the name the bank officials understand that the cheque is intended to be deposited, and they will not cash it.If you wish to make the cheque payable to some particular person by indorsing, write "Pay to______(name)______ ororder," and under this write your own name as you are accustomed to sign it.Do not carry around indorsed cheques loosely. Such cheques are payable to bearer and may be collected by any one.If you receive a cheque which has been transferred to you by ablankindorsement (name of indorser only), and you wish to hold it a day or two, write over the indorsement the words "Pay to the order of(yourself—writing your own name)." This is allowable legally. The cheque cannot then be collected until you indorse it.Cheque payable to order and a blank indorsement.A cheque payable to order and a blank indorsement.An authorised stamped indorsement is as good as a written one. Whether such indorsements are accepted or not depends upon the regulations of the clearing-house in the particular city in which they are offered for deposit. The written indorsement is considered safer for transmission of out-of-town collections.If you are indorsing for a company, or society, or corporation, write first the name of the company (this may be stamped on) and then your own name, followed by the word "Treas."If you have power of attorney to indorse for some particular person, write his name, followed by your own, followed by the word "Attorney" or "Atty.," as it is usually written.It is sometimes permissible to indorse the payee's name thus, "By______(your own name)." This may be done by a junior member of a concern when the person authorised to indorse cheques is absent and the cheques are deposited and not cashed.Do not write any unnecessary information on the back of your cheque. A story is told of a woman who received a cheque from her husband, and when cashing it wrote "Your loving wife" above her name on the back.V. BANK CHEQUES(Continued)If you wish to draw money from your own account, the most approved form of cheque is written "Pay to the order ofCash." This differs from a cheque drawn to "Bearer." The paying teller expects to see yourself, or some one well known to him as your representative, when you write "Cash." If you write "Pay to the order of(your own name)" you will be required to indorse your cheque before you can get it cashed.If your note is due at your own bank and you wish to draw a cheque in payment, write "Pay to the order ofBills Payable." If you wish to write a cheque to draw money for wages, write "Pay to the order ofPay-roll." If you wish to write a cheque to pay for a draft which you are buying, write "Pay to the order ofN. Y. Draft and Exchange," or whatever the circumstances may call for.A cheque made to obtain money for immediate use.A cheque made to obtain money for immediate use.If you wish to stop the payment of a cheque which you have issued you should notify the bank at once, giving full particulars.Banks have a custom, after paying and charging cheques, of cancelling them by punching or making some cut through their face. These cancelled cheques are returned to the makers at the end of each month.If you have deposited a cheque and it is returned through your bank marked "No Funds," it signifies that the cheque is worthless and that the person upon whose account it was drawn has no funds to meet it. Your bank will charge the amount to your account. The best thing todo in such a case is to hold the cheque as evidence of the debt, and write the person who sent it to you, giving particulars and asking for an explanation.If you wish to use your cheque to pay a note due at some other bank, or in buying real estate, or stocks, or bonds, you may find it necessary to get the chequecertified. This is done by an officer of the bank, who writes or stamps across the face of the cheque the words "Certified"or "Good When Properly Indorsed," and signs his name. (See illustration.) The amount will immediately be deducted from your account, and the bank, by guaranteeing your cheque, becomes responsible for its payment. Banks will usually certify any cheque drawn upon them if the depositor has the amount called for to his credit, no matter who presents the cheque, and this certifying makes it feasible for a man to carry in his pocket any amount of actual cash. If you should get a cheque certified and then not use it, deposit it in your bank, otherwise your account will be short the amount for which the cheque is drawn. In Canada all cheques are presented to the "ledger-keeper" for certification before being presented to the paying teller.A certified cheque.A certified cheque.THE USEFULNESS OF BANKSBanks are absolutely necessary to the success of modern commercial enterprises. They provide a place for the safe-keeping of money and securities, and they make the payment of bills much more convenient than if currency instead of cheques were the more largely used. But the great advantage of a banking institution to a business man is the opportunity it affords him of borrowing money, of securing cash for the carrying on of his business while his own capital is locked up in merchandise or in the hands of his debtors. Another important advantage is to be found in the facilities afforded by banks for the collection of cheques, notes, and drafts.VI. BANK DRAFTSA draft is a formal demand for the payment of money. Your bank cheque is your sight draft on your bank. It is not so stated, but it is so understood. A cheque differs from an ordinary commercial draft, both in its wording and in its purpose. The bank is obliged to pay your cheque if it holds funds of yours sufficient to meet it, while the person upon whom your draft is drawn may or may not honour it at his pleasure. A cheque is used for paying money to a creditor, while a draft is used as a means of collecting money from a debtor.Nearly all large banks keep money on deposit with one or more of the banks located in the great commercial centres. They call these centrally located banks theircorrespondents. The larger banks have correspondents in New York, Chicago, Boston, and other large cities.As business men keep money on deposit with banks to meet their cheques, so banks keep money on deposit with other banks to meet their drafts.Abank draftis simply the bank's cheque, drawn upon its deposit with some other bank. Banks sell these cheques to their customers, and merchants make large use of them in paying bills in distant cities. These drafts, orcashiers' cheques, as they are sometimes called, pass as cash anywhere within a reasonable distance of the money centre upon which they are drawn. Bankers' drafts on New York would, under ordinary financial conditions, be considered cash anywhere in the United States. A draft on a foreign bank is usually called abill of exchange.A cheque for the purchase of a draft.A cheque for the purchase of a draft.Cheques have come to be quite generally used for the payment of bills even at long distances. If a business man desires to close an important contract requiring cash in advance he sends a bank draft, if at a distance, or a certified cheque, if in the same city. If he desires simply to pay a debt he sends his own personal cheque. Bank drafts are quite generally used by merchants in the West to pay bills in the East. A draft on New Yorkbought in San Francisco is cash when it reaches New York, while a San Francisco cheque is not cash until it returns and is cashed by the bank upon which it is drawn. In the ordinary course of business cheques are considered cash no matter upon what bank drawn. The bank receiving them on deposit gives the depositor credit at once, even though it may take a week before the value represented by the cheque is in the possession of the bank.A bank draft.A bank draft.All wholesale transactions and a large proportion of retail transactions are completed by the passing of instruments of credit—notes, cheques, drafts, etc.; a part only of the retail trade is conducted by actual currency-bills and "change." Banks handle the bulk of these transferable titles and deal to a very small extent—that is, proportionally—in actual money. The notes, drafts, bills of exchange, and bank cheques are representative of the property passing by title in money from the producers to the consumers. A small proportion—perhaps six or eight per cent.—of these transactions is conducted by the use of actual bank or legal-tender notes. This trade ininstruments of credit amounts in the United States to fifty billions of dollars yearly.VII. PROMISSORY NOTESOrdinary form of promissory note.Ordinary form of promissory note.Apromissory noteis a written promise to pay a specified sum of money. At the time of the note's issue—that is, when signed and delivered—two parties are connected with it, themakerand thepayee. The maker is the person who signs or promises to pay the note; the payee is the person to whom or to whose order the note is made payable.Negotiablein a commercial sense meanstransferable, and a negotiable note is a note which can be transferred from one person to another. A note to be made negotiable must contain the wordbeareror the wordorder—that is, it must be payable eitherto bearer, orto the orderof the payee. Anon-negotiablenote is payable to a particular persononly. A note may be written on anykind of paper, in ink or pencil. It is wise, however, to use ink to prevent changes. All stationers sell blank forms for notes which are easily filled in.The samples of notes which appear in this lesson are selected simply to illustrate to students the fact that there are a great many special forms of notes in common use. The wording differs slightly in different States.Thedateof a note is a matter of the first importance. Some bankers and business men consider it better to draw notes payable at a certain fixed time, as, "I promise to pay on the 10th of March, 1897." The common custom is to make notes payable a certain number of days or months after date. A note made or issued on Sunday is void. Theday of maturityis the day upon which a note becomes legally due. In several of the States a note is not legally due until three days, calleddays of grace, after the expiration of the time specified in the note.A promissory note filled out on an engraved blank.A promissory note filled out on an engraved blank.The wordsvalue received, which usually appear upon notes, are not necessary legally. Thousands of good notes made without any value consideration are handled daily.Thepromise to payof a negotiable note must be unconditional. It cannot be made to depend upon any contingency whatever.Notes that are made in settlement of genuine business transactions come under the head of regular, legitimate business paper. Anaccommodationnote is one which is signed, or indorsed, simply as an accommodation, and not in settlement of an account or in payment of an indebtedness. With banks accommodation paper has a deservedly hard reputation. However, there are all grades and shades of accommodation paper, though it represents no actual business transaction between the parties to it, and rests upon no other foundation than that of mutual agreement. No contract is good without a consideration, but this is only true between the original parties to a note. The third party or innocent receiver or holder of a note has a good title, and can recover its value, even though it was originally given without a valuable consideration. An innocent holder of a note which had been originally lost or stolen has a good title to it if he received it for value.A special form for a promissory note.A special form for a promissory note.A note does not draw interest until after maturity, unless the wordswith interestappear on the face. Notes draw interest after maturity and until paid, at the legal rate.A note should be presented for payment upon the exact day of maturity. Notes made payable at a bank, or at any other place, must be presented for payment at the place named. When no place is specified the note is payable at the maker's place of business or at his residence.In finding the date of maturity it is important to remember that when a note is drawndays after datethe actual days must be counted, and when drawnmonths after datethe time is reckoned by months.Todiscounta note is to sell it at a discount. The rates of discount vary according to the security offered, or the character of the loan, or the state of the money market. For ordinary commercial paper the rates run from four to eight per cent. Notes received and given by commercial houses and discounted by banks are not usually for a longer period than four months.VIII. THE CLEARING-HOUSE SYSTEMIn large cities cheques representing millions of dollars are deposited in the banks every day. The separate collection of these would be almost impossible were it not for the clearing-house system. Each large city has its clearing-house. It is an establishment formed by the banks themselves, and for their own convenience. The leading banks of a city connect themselves with the clearing-house of that city, and through other banks with the clearing-houses of other cities, particularly New York. Country banks connect themselves with one or more clearing-houses through city banks, which do theirbusiness for them. The New York banks, largely through private bankers, branches of foreign banking houses, connect themselves with London, so that each bank in the world is connected indirectly with every other bank in the world, and in London is the final clearing-house of the world.The advantages of the clearing-house system.The advantages of the clearing-house system.Suppose that the above diagram represents the banks and clearing-house of a city, and also the two business houses of Brown and Smith. Brown keeps his money on deposit in Bank E, and Smith in Bank B. Brown sends (by mail) a cheque to Smith in payment of a bill. Now, Smith can come all the way to Bank E, and, if he is properly identified, can collect the cheque. He does not do this, however, but deposits Brown's cheque inBank B, the bank where he does his banking business. Now, B cannot send to E to get the money. It could do this, perhaps, if it had only one cheque, but it has taken in hundreds of cheques, some, perhaps, on every bank in town, and on many banks out of town. It would take a hundred messengers to collect them. So, instead of B's going to E, they meet half-way, or at a central point called a clearing-house, and there collect their cheques. B may have $5000 in cheques on E, and E may have $4000 in cheques on B, so that the exchange can be made—that is, the cheques can be paid by E paying the difference of $1000, which is done, not direct, but through the officers of the clearing-house. Now Bank E's messenger carries Brown's cheque back with him and enters it up against Brown's account. This in simple language is the primary idea of the clearing-house.The clearings in New York in one day amount to from one to two hundred millions of dollars. By clearings we mean the value of the cheques which arecleared—that is, which change hands through the clearing-house. Usually once a week (in some cities oftener) the banks of a city make to their clearing-house a report, based on daily balances, of their condition.The route of a cheque.The route of a cheque.To illustrate the connection between banks at distant points let us suppose that B of Media, Pennsylvania, who keeps his money on deposit in the First National Bank of Media, sends a cheque in payment of a bill to K of South Evanston, Illinois. K deposits the cheque in the Citizens Bank of his town and receives immediate credit for it upon his bank-book, just the same as though the cheque were drawn upon the same or a near-by bank. The Citizens Bank simply sends the cheque, with other distant cheques, to its correspondent, the National Bank of the Republic, Chicago, on deposit, in many instances in about the same sense that K deposited the cheque in the Citizens Bank. The National Bank of the Republic sends the cheque, with other cheques, to its New York correspondent, the National Park Bank. It may possibly send to Philadelphia direct, or even to Media; but this is very unlikely. The National Park Bank sends the cheque to its Philadelphia correspondent, say the Penn National Bank. Now the clearing-house clerk of the Penn National carries the cheque to the Philadelphia clearing-house and enters it, with other cheques, on the First National of Media. Custom, however, differs very greatly in this particular. Many near-by country banks clear through city banks; others clear less directly. If the First National Bank of Philadelphia is known at the clearing-house as the representative of the First National Bank of Media it likely has money belonging to this Media bank on deposit. In that case the cheque is charged up against the account of the First National of Philadelphia. This bank then sends the cheque to the First National of Media, by which it is charged up against B. This system of collection of cheques is about as perfect as is the post-office system of carrying registered mail.Backs of two paid cheques.Backs of two paid cheques.Now, the banks and clearing-houses through which the cheque passes on its wayhomestamp their indorsements and other information upon the back. Our illustration shows the backs of two cheques which have "travelled." Millions of dollars are collected by banks daily in this way, and all without expense to their customers. It is estimated that these collections cost the New York City banks more than two million dollars a year in loss of interest while the cheques areen route. Ten thousand collection letters are sent out daily by the banks of New York City alone.IX. COMMERCIAL DRAFTSAcommercial draftbears a close resemblance to a letter from one person to another requesting that a certain sum of money be paid to the person who calls, or to the bank or firm for whom he is acting. For instance, the draft shown in the first illustration might be worded something like this:St. Louis, Mo., Feb. 22, 1899.Mr. Robert Elsmere,Jefferson City, Mo.My dear Sir:Will you kindly pay to the messenger from the——Bank who will call to-morrow the sum of three hundred and ninety-seven dollars and charge to my account?Yours, very truly,David Grieve.A sight draft developed from the above letter.A sight draft developed from the above letter.Commercial usage, however, recognises a particular form in which this letter is to be written, and the address of the person for whom it is intended is usually written at the lower left-hand corner instead of on an envelope. Commercial drafts usually reach the persons upon whom they are drawn through the medium of the banks rather than directly by mail. Let us illustrate. Suppose that A of Chicago owes B of Buffalo $200, and B desires to collect the amount by means of a draft. He fills in a blank draft, signs it, and addresses it on thelower left-hand corner to A. Instead of sending it by mail he takes it to his bank—that is, deposits it for collection. It will reach a Chicago bank in about the same way that cheques for collection go from one place to another. A messenger from the Chicago bank will carry the draft to A's office and present it for payment or for acceptance. If it is asightdraft—that is, a draft payable when A sees it—he may give cash for it at once and take the draft as his receipt. If he has not the money convenient he may write across the face "Accepted, payable at (his) Bank," as in the illustration. It will then reach his bank and be paid as his personal cheque would be, and should be entered in his cheque-book. Banks usually give one day upon sight drafts. The draft will not be presented a second time, but will be held at the bank until the close of the banking hours the next day, where A can call to pay if he chooses. Leniency in the matter of time will depend largely upon B's instructions and the bank's attitude toward A. If the draft is a time draft—that is, if B gives A time, a certain number of days, in which to pay it—A, if he wishes to pay the draft,acceptsit. He does this by writing the wordacceptedwith the date and his signature across the face of the draft. He may make it payable at his bank as he would a note, if he so desires. He then returns the draft to the messenger, and if the time is long the draft is returned to B; if only a few days, the bank holds it for collection.No. 1. A sight draft.No. 1. A sight draft.No. 2. An accepted ten-day sight draft.No. 2. An accepted ten-day sight draft.No. 3. An accepted sight draft.No. 3. An accepted sight draft.No. 4. A time draft.No. 4. A time draft.An accepted draft is really a promissory note, though it is more often called anacceptance. When a man pays or accepts a draft he is said tohonourit. In the foregoing illustration A is not obliged either to pay or to accept the draft. It is not binding upon him any more than a letter would be. He can refuse payment just as easily and as readily as he could decline to pay a collector who calls for payment of a bill. Of course, if a man habitually refuses to honour legitimate drafts it may injure his credit with banks and business houses.It is a very common thing to collect distant accounts by means of commercial drafts. A debtor is more likely to meet—that is,to pay—a draft than he is to reply to a letter and inclose his cheque. It is really more convenient, and safer, too, for there is some risk in sending personal cheques through the mail. There are some houses that make all their payments by cheques, while there are others which prefer to have their creditors at a distance draw on them for the amounts due.If a business man who has been accustomed to honour drafts continues for a period to dishonour them, the banks through which the drafts pass naturally conclude that he is unable to meet his liabilities.Some houses deposit their drafts for collection in theirhome banks, while others have a custom of sending them direct to some bank in or near the place where the debtor resides. If the place is a very small one the collection is sometimes made through one of the express companies.When goods are sold for distinct periods of credit, and it is generally understood that maturing accounts are subject to sight drafts, there should be no need of notifying the debtor in advance. Some houses, however, make a general custom of sending notices ten days in advance, stating that a draft will be drawn if cheque is not received in the meantime.Notice the illustrations. The protest notice at the left of Nos. 1, 2, and 4 is intended for the bank presenting the draft for payment. The reason for this will be fully explained in our lesson on protested paper. (SeeLesson XIII.) No. 2 shows an accepted draft payable to the order of a bank in the city upon which it is drawn. No. 1 is payable to the order of a bank in the city of the drawer. No. 3 is a sight draft payable to the order of a bank and accepted payable at a bank. No. 4 is a time draft payable to "ourselves"—that is, the Pennsylvania Steel Company.Drafts are often discounted at banks before acceptance where the credit of the drawer is good. In such cases the drafts which are dishonoured are charged up against the drawer's account.X. FOREIGN EXCHANGEIt is quite in order that we should follow lessons on the clearing-house and commercial drafts with a lesson on foreign exchange.We learned in the last lesson that commercial drafts are made use of to facilitate the collection of accounts.They are simply formal demands for the payment of legitimate debts. When these formal demands are made upon foreign debtors they are called bills of exchange; and the process of buying and selling these drafts, the drafts themselves, and the fluctuations in price, all are included in the general nameexchange.Foreign exchange.Foreign exchange.To illustrate the principles of exchange let us suppose that the following transactions have occurred:C of Boston has sold goods, £2000, to H of Hamburg.D of Chicago has sold goods, £5000, to F of Glasgow.M of Chicago has sold goods, £3000, to K of London.E of Philadelphia has sold goods, £6000, to R of Paris.P of New York has sold goods, £1000, to G of Paris.C draws on H for £2000, sells the draft to a banking-house in Boston; they send to Bank A of New York, andthe New York bank to their London correspondent, say Bank B, with instructions to collect from Hamburg.D draws in a similar way on F. E draws on R, and P on G. Suppose that M instead of drawing on K receives a draft drawn by Bank B of London on Bank A of New York, payable to M's order.Americahas sold goods worth £17,000 toEurope.Europe. . . . . . owes £17,000 to . . . . .AmericaBut B has paid A £3000.____________B . . . . . . therefore owes £14,000 to . . . . . . ANow it will cost B a considerable sum of money to ship £14,000 in gold to A, for all exchanges between Europe and America are payable in gold. Suppose that S of New York owes T of London £14,000, and T draws on S and takes the draft to Bank B in London and offers it for sale. Will B offer more or less than £14,000 for the bill of exchange or draft? He will offer more. It will be cheaper for him to pay a premium for the draft than to ship gold, for he can send this draft to Bank A to pay his indebtedness, and A can collect from S.In the money market in New York there is a constant supply of exchanges (drafts) on London, and in London a constant supply of exchanges on New York.Experience has shown that at all times the number of persons in Europe indebted to American business houses is about (though of course not actually) the same as the number of persons in America indebted to European houses. Hence when A of New York wishes to make a payment to B of London he does not send the actual money, but goes into the market—that is, to a banker doing a foreign business—and buys a draft, called a bill of exchange, which is in reality the banker's order on his London correspondent, asking the latter to pay the money to the person named. It may be thatabout the same time some London merchant who owes money in New York goes to the very same London banker and buys a draft on the New York bank. In this way the one draft cancels the other, and when there is a difference at the end of the week or month the actual gold is sent across to balance the account.These exchanges have a sort of commodity value, and like all commodities, depend upon the law of supply and demand. When gold is being shipped abroad we say that the balance of trade is against us—that is, we are buying more from Europe than Europe is buying from us, and the gold is shipped to pay the balance or difference.Theparof the currency of any two countries means, among merchants, the equivalency of a certain amount of the (coin) currency of the one in the (coin) currency of the other, supposing the currencies of both to be of the precise weight and purity fixed by the respective mints. The par of exchange between Great Britain and the United States is 4.862⁄3; that is, £1 sterling is worth $4.862⁄3. Exchange is quoted daily in New York and other city papers at 4.87, 4.88, 4.88½, etc., for sight bills and at a higher rate for sixty-day bills. Business men who are accustomed to watching fluctuations in exchange rates use the quotations as a sort of barometer to foretell trade conditions. The imports and exports of bullion (uncoined gold) are the real test of exchange. If bullion is stationary, flowing neither into nor out of a country, its exchanges may be truly said to be at par; and on the other hand, if bullion is being exported from a country, it is a proof that the exchange is against it; and conversely if there be large importations.The cost of conveying bullion from one country to another forms the limit within which the rise and fall of therealexchange between them must be confined. If, for illustration, a New York merchant owes a debt inLondon and exchange costs him, say, two per cent., and the cost of shipping the gold is only one per cent., it will be to his advantage to pay the debt by sending the actual coin across. Afavourablerealexchange operates as a duty on exportation and as a bounty on importation.A bill of exchange (private).A bill of exchange (private).A bill of exchange (private).It is to the interest of merchants or bankers who dealin 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.A bill of exchange (banker's).A bill of exchange (banker's).A bill of exchange (banker's).Two illustrations of bills of exchange are given in this lesson. Each is drawn in duplicate. The original is soldor 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 steamerCardiff, 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.
A poorly drawn cheque.A poorly drawn cheque.
The illustration on page 8 shows a cheque carefully and correctly drawn. The signature should be in your usual style, familiar to the paying teller. Sign your name the same way all the time. Have a characteristic signature, as familiar to your friends as is your face.
A cheque is a draft or order upon your bank, and it need not necessarily be written in the prescribed form. Such an order written on a sheet of note-paper witha lead-pencil might be in every way a legally good cheque.
A carefully drawn cheque.A carefully drawn cheque.
Usually cheques should be drawn "to order." The words "Pay to the order of John Brown" mean that the money is to be paid to John Brown, or to any person that heordersit paid to. If a cheque is drawn "Pay to John Brown or Bearer" or simply "Pay to Bearer," any person that is the bearer can collect it. The paying teller may ask the person presenting the cheque to write his name on the back, simply to have it for reference.
In writing and signing cheques use good black ink and let the copy dry a little before a blotter is used.
The subject of indorsements will be treated in a subsequent lesson.
The banks of this country make it a rule not to cash a cheque that is drawn payable to order, unless the person presenting the cheque is known at the bank, or unless he satisfies the paying teller that he is really the person to whom the money should be paid. It must be rememberedhowever, that a cheque drawn to order and then indorsed in blank by the payee is really payable to bearer, and if the paying teller is satisfied that the payee's signature is genuine he will not likely hesitate to cash the cheque. In England all cheques apparently properly indorsed are paid without identification.
A cheque drawn so as to insure payment to proper party,A cheque drawn so as to insure payment to proper party.
In drawing a cheque in favour of a person not likely to be well known in banking circles, write his address or his business after his name on the face of the cheque. For instance, if you should send a cheque to John Brown, St. Louis, it might possibly fall into the hands of the wrong John Brown; but if you write the cheque in favour of "John Brown, 246 West Avenue, St. Louis," it is more than likely that the right person will collect it.
If you wish to get a cheque cashed where you are unknown, and it is not convenient for a friend who has an account at the bank to go with you for the purpose of identification, ask him to place his signature on the back of your cheque, and you will not likely have trouble in getting it cashed at the bank where your friend keeps his account. By placing his signature upon the back of the cheque he guarantees the bank against loss. A bankis responsible for the signatures of its depositors, but it cannot be supposed to know the signatures of indorsers. The reliable identifier is in reality the person who is responsible.
Cheque payable to order and a blank indorsement.A cheque payable to order and a blank indorsement.
If you wish to draw money from your own account, the most approved form of cheque is written "Pay to the order ofCash." This differs from a cheque drawn to "Bearer." The paying teller expects to see yourself, or some one well known to him as your representative, when you write "Cash." If you write "Pay to the order of(your own name)" you will be required to indorse your cheque before you can get it cashed.
If your note is due at your own bank and you wish to draw a cheque in payment, write "Pay to the order ofBills Payable." If you wish to write a cheque to draw money for wages, write "Pay to the order ofPay-roll." If you wish to write a cheque to pay for a draft which you are buying, write "Pay to the order ofN. Y. Draft and Exchange," or whatever the circumstances may call for.
A cheque made to obtain money for immediate use.A cheque made to obtain money for immediate use.
If you wish to stop the payment of a cheque which you have issued you should notify the bank at once, giving full particulars.
Banks have a custom, after paying and charging cheques, of cancelling them by punching or making some cut through their face. These cancelled cheques are returned to the makers at the end of each month.
If you have deposited a cheque and it is returned through your bank marked "No Funds," it signifies that the cheque is worthless and that the person upon whose account it was drawn has no funds to meet it. Your bank will charge the amount to your account. The best thing todo in such a case is to hold the cheque as evidence of the debt, and write the person who sent it to you, giving particulars and asking for an explanation.
If you wish to use your cheque to pay a note due at some other bank, or in buying real estate, or stocks, or bonds, you may find it necessary to get the chequecertified. This is done by an officer of the bank, who writes or stamps across the face of the cheque the words "Certified"or "Good When Properly Indorsed," and signs his name. (See illustration.) The amount will immediately be deducted from your account, and the bank, by guaranteeing your cheque, becomes responsible for its payment. Banks will usually certify any cheque drawn upon them if the depositor has the amount called for to his credit, no matter who presents the cheque, and this certifying makes it feasible for a man to carry in his pocket any amount of actual cash. If you should get a cheque certified and then not use it, deposit it in your bank, otherwise your account will be short the amount for which the cheque is drawn. In Canada all cheques are presented to the "ledger-keeper" for certification before being presented to the paying teller.
A certified cheque.A certified cheque.
Banks are absolutely necessary to the success of modern commercial enterprises. They provide a place for the safe-keeping of money and securities, and they make the payment of bills much more convenient than if currency instead of cheques were the more largely used. But the great advantage of a banking institution to a business man is the opportunity it affords him of borrowing money, of securing cash for the carrying on of his business while his own capital is locked up in merchandise or in the hands of his debtors. Another important advantage is to be found in the facilities afforded by banks for the collection of cheques, notes, and drafts.
A draft is a formal demand for the payment of money. Your bank cheque is your sight draft on your bank. It is not so stated, but it is so understood. A cheque differs from an ordinary commercial draft, both in its wording and in its purpose. The bank is obliged to pay your cheque if it holds funds of yours sufficient to meet it, while the person upon whom your draft is drawn may or may not honour it at his pleasure. A cheque is used for paying money to a creditor, while a draft is used as a means of collecting money from a debtor.
Nearly all large banks keep money on deposit with one or more of the banks located in the great commercial centres. They call these centrally located banks theircorrespondents. The larger banks have correspondents in New York, Chicago, Boston, and other large cities.As business men keep money on deposit with banks to meet their cheques, so banks keep money on deposit with other banks to meet their drafts.
Abank draftis simply the bank's cheque, drawn upon its deposit with some other bank. Banks sell these cheques to their customers, and merchants make large use of them in paying bills in distant cities. These drafts, orcashiers' cheques, as they are sometimes called, pass as cash anywhere within a reasonable distance of the money centre upon which they are drawn. Bankers' drafts on New York would, under ordinary financial conditions, be considered cash anywhere in the United States. A draft on a foreign bank is usually called abill of exchange.
A cheque for the purchase of a draft.A cheque for the purchase of a draft.
Cheques have come to be quite generally used for the payment of bills even at long distances. If a business man desires to close an important contract requiring cash in advance he sends a bank draft, if at a distance, or a certified cheque, if in the same city. If he desires simply to pay a debt he sends his own personal cheque. Bank drafts are quite generally used by merchants in the West to pay bills in the East. A draft on New Yorkbought in San Francisco is cash when it reaches New York, while a San Francisco cheque is not cash until it returns and is cashed by the bank upon which it is drawn. In the ordinary course of business cheques are considered cash no matter upon what bank drawn. The bank receiving them on deposit gives the depositor credit at once, even though it may take a week before the value represented by the cheque is in the possession of the bank.
A bank draft.A bank draft.
All wholesale transactions and a large proportion of retail transactions are completed by the passing of instruments of credit—notes, cheques, drafts, etc.; a part only of the retail trade is conducted by actual currency-bills and "change." Banks handle the bulk of these transferable titles and deal to a very small extent—that is, proportionally—in actual money. The notes, drafts, bills of exchange, and bank cheques are representative of the property passing by title in money from the producers to the consumers. A small proportion—perhaps six or eight per cent.—of these transactions is conducted by the use of actual bank or legal-tender notes. This trade ininstruments of credit amounts in the United States to fifty billions of dollars yearly.
Ordinary form of promissory note.Ordinary form of promissory note.
Apromissory noteis a written promise to pay a specified sum of money. At the time of the note's issue—that is, when signed and delivered—two parties are connected with it, themakerand thepayee. The maker is the person who signs or promises to pay the note; the payee is the person to whom or to whose order the note is made payable.Negotiablein a commercial sense meanstransferable, and a negotiable note is a note which can be transferred from one person to another. A note to be made negotiable must contain the wordbeareror the wordorder—that is, it must be payable eitherto bearer, orto the orderof the payee. Anon-negotiablenote is payable to a particular persononly. A note may be written on anykind of paper, in ink or pencil. It is wise, however, to use ink to prevent changes. All stationers sell blank forms for notes which are easily filled in.
The samples of notes which appear in this lesson are selected simply to illustrate to students the fact that there are a great many special forms of notes in common use. The wording differs slightly in different States.
Thedateof a note is a matter of the first importance. Some bankers and business men consider it better to draw notes payable at a certain fixed time, as, "I promise to pay on the 10th of March, 1897." The common custom is to make notes payable a certain number of days or months after date. A note made or issued on Sunday is void. Theday of maturityis the day upon which a note becomes legally due. In several of the States a note is not legally due until three days, calleddays of grace, after the expiration of the time specified in the note.
A promissory note filled out on an engraved blank.A promissory note filled out on an engraved blank.
The wordsvalue received, which usually appear upon notes, are not necessary legally. Thousands of good notes made without any value consideration are handled daily.
Thepromise to payof a negotiable note must be unconditional. It cannot be made to depend upon any contingency whatever.
Notes that are made in settlement of genuine business transactions come under the head of regular, legitimate business paper. Anaccommodationnote is one which is signed, or indorsed, simply as an accommodation, and not in settlement of an account or in payment of an indebtedness. With banks accommodation paper has a deservedly hard reputation. However, there are all grades and shades of accommodation paper, though it represents no actual business transaction between the parties to it, and rests upon no other foundation than that of mutual agreement. No contract is good without a consideration, but this is only true between the original parties to a note. The third party or innocent receiver or holder of a note has a good title, and can recover its value, even though it was originally given without a valuable consideration. An innocent holder of a note which had been originally lost or stolen has a good title to it if he received it for value.
A special form for a promissory note.A special form for a promissory note.
A note does not draw interest until after maturity, unless the wordswith interestappear on the face. Notes draw interest after maturity and until paid, at the legal rate.
A note should be presented for payment upon the exact day of maturity. Notes made payable at a bank, or at any other place, must be presented for payment at the place named. When no place is specified the note is payable at the maker's place of business or at his residence.
In finding the date of maturity it is important to remember that when a note is drawndays after datethe actual days must be counted, and when drawnmonths after datethe time is reckoned by months.
Todiscounta note is to sell it at a discount. The rates of discount vary according to the security offered, or the character of the loan, or the state of the money market. For ordinary commercial paper the rates run from four to eight per cent. Notes received and given by commercial houses and discounted by banks are not usually for a longer period than four months.
In large cities cheques representing millions of dollars are deposited in the banks every day. The separate collection of these would be almost impossible were it not for the clearing-house system. Each large city has its clearing-house. It is an establishment formed by the banks themselves, and for their own convenience. The leading banks of a city connect themselves with the clearing-house of that city, and through other banks with the clearing-houses of other cities, particularly New York. Country banks connect themselves with one or more clearing-houses through city banks, which do theirbusiness for them. The New York banks, largely through private bankers, branches of foreign banking houses, connect themselves with London, so that each bank in the world is connected indirectly with every other bank in the world, and in London is the final clearing-house of the world.
The advantages of the clearing-house system.The advantages of the clearing-house system.
Suppose that the above diagram represents the banks and clearing-house of a city, and also the two business houses of Brown and Smith. Brown keeps his money on deposit in Bank E, and Smith in Bank B. Brown sends (by mail) a cheque to Smith in payment of a bill. Now, Smith can come all the way to Bank E, and, if he is properly identified, can collect the cheque. He does not do this, however, but deposits Brown's cheque inBank B, the bank where he does his banking business. Now, B cannot send to E to get the money. It could do this, perhaps, if it had only one cheque, but it has taken in hundreds of cheques, some, perhaps, on every bank in town, and on many banks out of town. It would take a hundred messengers to collect them. So, instead of B's going to E, they meet half-way, or at a central point called a clearing-house, and there collect their cheques. B may have $5000 in cheques on E, and E may have $4000 in cheques on B, so that the exchange can be made—that is, the cheques can be paid by E paying the difference of $1000, which is done, not direct, but through the officers of the clearing-house. Now Bank E's messenger carries Brown's cheque back with him and enters it up against Brown's account. This in simple language is the primary idea of the clearing-house.
The clearings in New York in one day amount to from one to two hundred millions of dollars. By clearings we mean the value of the cheques which arecleared—that is, which change hands through the clearing-house. Usually once a week (in some cities oftener) the banks of a city make to their clearing-house a report, based on daily balances, of their condition.
The route of a cheque.The route of a cheque.
To illustrate the connection between banks at distant points let us suppose that B of Media, Pennsylvania, who keeps his money on deposit in the First National Bank of Media, sends a cheque in payment of a bill to K of South Evanston, Illinois. K deposits the cheque in the Citizens Bank of his town and receives immediate credit for it upon his bank-book, just the same as though the cheque were drawn upon the same or a near-by bank. The Citizens Bank simply sends the cheque, with other distant cheques, to its correspondent, the National Bank of the Republic, Chicago, on deposit, in many instances in about the same sense that K deposited the cheque in the Citizens Bank. The National Bank of the Republic sends the cheque, with other cheques, to its New York correspondent, the National Park Bank. It may possibly send to Philadelphia direct, or even to Media; but this is very unlikely. The National Park Bank sends the cheque to its Philadelphia correspondent, say the Penn National Bank. Now the clearing-house clerk of the Penn National carries the cheque to the Philadelphia clearing-house and enters it, with other cheques, on the First National of Media. Custom, however, differs very greatly in this particular. Many near-by country banks clear through city banks; others clear less directly. If the First National Bank of Philadelphia is known at the clearing-house as the representative of the First National Bank of Media it likely has money belonging to this Media bank on deposit. In that case the cheque is charged up against the account of the First National of Philadelphia. This bank then sends the cheque to the First National of Media, by which it is charged up against B. This system of collection of cheques is about as perfect as is the post-office system of carrying registered mail.
Backs of two paid cheques.Backs of two paid cheques.
Now, the banks and clearing-houses through which the cheque passes on its wayhomestamp their indorsements and other information upon the back. Our illustration shows the backs of two cheques which have "travelled." Millions of dollars are collected by banks daily in this way, and all without expense to their customers. It is estimated that these collections cost the New York City banks more than two million dollars a year in loss of interest while the cheques areen route. Ten thousand collection letters are sent out daily by the banks of New York City alone.
Acommercial draftbears a close resemblance to a letter from one person to another requesting that a certain sum of money be paid to the person who calls, or to the bank or firm for whom he is acting. For instance, the draft shown in the first illustration might be worded something like this:
St. Louis, Mo., Feb. 22, 1899.Mr. Robert Elsmere,Jefferson City, Mo.My dear Sir:Will you kindly pay to the messenger from the——Bank who will call to-morrow the sum of three hundred and ninety-seven dollars and charge to my account?Yours, very truly,David Grieve.
St. Louis, Mo., Feb. 22, 1899.
Mr. Robert Elsmere,
Jefferson City, Mo.
My dear Sir:
Will you kindly pay to the messenger from the——Bank who will call to-morrow the sum of three hundred and ninety-seven dollars and charge to my account?
Yours, very truly,
David Grieve.
A sight draft developed from the above letter.A sight draft developed from the above letter.
Commercial usage, however, recognises a particular form in which this letter is to be written, and the address of the person for whom it is intended is usually written at the lower left-hand corner instead of on an envelope. Commercial drafts usually reach the persons upon whom they are drawn through the medium of the banks rather than directly by mail. Let us illustrate. Suppose that A of Chicago owes B of Buffalo $200, and B desires to collect the amount by means of a draft. He fills in a blank draft, signs it, and addresses it on thelower left-hand corner to A. Instead of sending it by mail he takes it to his bank—that is, deposits it for collection. It will reach a Chicago bank in about the same way that cheques for collection go from one place to another. A messenger from the Chicago bank will carry the draft to A's office and present it for payment or for acceptance. If it is asightdraft—that is, a draft payable when A sees it—he may give cash for it at once and take the draft as his receipt. If he has not the money convenient he may write across the face "Accepted, payable at (his) Bank," as in the illustration. It will then reach his bank and be paid as his personal cheque would be, and should be entered in his cheque-book. Banks usually give one day upon sight drafts. The draft will not be presented a second time, but will be held at the bank until the close of the banking hours the next day, where A can call to pay if he chooses. Leniency in the matter of time will depend largely upon B's instructions and the bank's attitude toward A. If the draft is a time draft—that is, if B gives A time, a certain number of days, in which to pay it—A, if he wishes to pay the draft,acceptsit. He does this by writing the wordacceptedwith the date and his signature across the face of the draft. He may make it payable at his bank as he would a note, if he so desires. He then returns the draft to the messenger, and if the time is long the draft is returned to B; if only a few days, the bank holds it for collection.
No. 1. A sight draft.No. 1. A sight draft.
No. 2. An accepted ten-day sight draft.No. 2. An accepted ten-day sight draft.
No. 3. An accepted sight draft.No. 3. An accepted sight draft.
No. 4. A time draft.No. 4. A time draft.
An accepted draft is really a promissory note, though it is more often called anacceptance. When a man pays or accepts a draft he is said tohonourit. In the foregoing illustration A is not obliged either to pay or to accept the draft. It is not binding upon him any more than a letter would be. He can refuse payment just as easily and as readily as he could decline to pay a collector who calls for payment of a bill. Of course, if a man habitually refuses to honour legitimate drafts it may injure his credit with banks and business houses.
It is a very common thing to collect distant accounts by means of commercial drafts. A debtor is more likely to meet—that is,to pay—a draft than he is to reply to a letter and inclose his cheque. It is really more convenient, and safer, too, for there is some risk in sending personal cheques through the mail. There are some houses that make all their payments by cheques, while there are others which prefer to have their creditors at a distance draw on them for the amounts due.
If a business man who has been accustomed to honour drafts continues for a period to dishonour them, the banks through which the drafts pass naturally conclude that he is unable to meet his liabilities.
Some houses deposit their drafts for collection in theirhome banks, while others have a custom of sending them direct to some bank in or near the place where the debtor resides. If the place is a very small one the collection is sometimes made through one of the express companies.
When goods are sold for distinct periods of credit, and it is generally understood that maturing accounts are subject to sight drafts, there should be no need of notifying the debtor in advance. Some houses, however, make a general custom of sending notices ten days in advance, stating that a draft will be drawn if cheque is not received in the meantime.
Notice the illustrations. The protest notice at the left of Nos. 1, 2, and 4 is intended for the bank presenting the draft for payment. The reason for this will be fully explained in our lesson on protested paper. (SeeLesson XIII.) No. 2 shows an accepted draft payable to the order of a bank in the city upon which it is drawn. No. 1 is payable to the order of a bank in the city of the drawer. No. 3 is a sight draft payable to the order of a bank and accepted payable at a bank. No. 4 is a time draft payable to "ourselves"—that is, the Pennsylvania Steel Company.
Drafts are often discounted at banks before acceptance where the credit of the drawer is good. In such cases the drafts which are dishonoured are charged up against the drawer's account.
It is quite in order that we should follow lessons on the clearing-house and commercial drafts with a lesson on foreign exchange.
We learned in the last lesson that commercial drafts are made use of to facilitate the collection of accounts.They are simply formal demands for the payment of legitimate debts. When these formal demands are made upon foreign debtors they are called bills of exchange; and the process of buying and selling these drafts, the drafts themselves, and the fluctuations in price, all are included in the general nameexchange.
Foreign exchange.Foreign exchange.
To illustrate the principles of exchange let us suppose that the following transactions have occurred:
C draws on H for £2000, sells the draft to a banking-house in Boston; they send to Bank A of New York, andthe New York bank to their London correspondent, say Bank B, with instructions to collect from Hamburg.
D draws in a similar way on F. E draws on R, and P on G. Suppose that M instead of drawing on K receives a draft drawn by Bank B of London on Bank A of New York, payable to M's order.
Americahas sold goods worth £17,000 toEurope.
Europe. . . . . . owes £17,000 to . . . . .AmericaBut B has paid A £3000.____________B . . . . . . therefore owes £14,000 to . . . . . . A
Europe. . . . . . owes £17,000 to . . . . .America
But B has paid A £3000.
____________
B . . . . . . therefore owes £14,000 to . . . . . . A
Now it will cost B a considerable sum of money to ship £14,000 in gold to A, for all exchanges between Europe and America are payable in gold. Suppose that S of New York owes T of London £14,000, and T draws on S and takes the draft to Bank B in London and offers it for sale. Will B offer more or less than £14,000 for the bill of exchange or draft? He will offer more. It will be cheaper for him to pay a premium for the draft than to ship gold, for he can send this draft to Bank A to pay his indebtedness, and A can collect from S.
In the money market in New York there is a constant supply of exchanges (drafts) on London, and in London a constant supply of exchanges on New York.
Experience has shown that at all times the number of persons in Europe indebted to American business houses is about (though of course not actually) the same as the number of persons in America indebted to European houses. Hence when A of New York wishes to make a payment to B of London he does not send the actual money, but goes into the market—that is, to a banker doing a foreign business—and buys a draft, called a bill of exchange, which is in reality the banker's order on his London correspondent, asking the latter to pay the money to the person named. It may be thatabout the same time some London merchant who owes money in New York goes to the very same London banker and buys a draft on the New York bank. In this way the one draft cancels the other, and when there is a difference at the end of the week or month the actual gold is sent across to balance the account.
These exchanges have a sort of commodity value, and like all commodities, depend upon the law of supply and demand. When gold is being shipped abroad we say that the balance of trade is against us—that is, we are buying more from Europe than Europe is buying from us, and the gold is shipped to pay the balance or difference.
Theparof the currency of any two countries means, among merchants, the equivalency of a certain amount of the (coin) currency of the one in the (coin) currency of the other, supposing the currencies of both to be of the precise weight and purity fixed by the respective mints. The par of exchange between Great Britain and the United States is 4.862⁄3; that is, £1 sterling is worth $4.862⁄3. Exchange is quoted daily in New York and other city papers at 4.87, 4.88, 4.88½, etc., for sight bills and at a higher rate for sixty-day bills. Business men who are accustomed to watching fluctuations in exchange rates use the quotations as a sort of barometer to foretell trade conditions. The imports and exports of bullion (uncoined gold) are the real test of exchange. If bullion is stationary, flowing neither into nor out of a country, its exchanges may be truly said to be at par; and on the other hand, if bullion is being exported from a country, it is a proof that the exchange is against it; and conversely if there be large importations.
The cost of conveying bullion from one country to another forms the limit within which the rise and fall of therealexchange between them must be confined. If, for illustration, a New York merchant owes a debt inLondon and exchange costs him, say, two per cent., and the cost of shipping the gold is only one per cent., it will be to his advantage to pay the debt by sending the actual coin across. Afavourablerealexchange operates as a duty on exportation and as a bounty on importation.
A bill of exchange (private).A bill of exchange (private).A bill of exchange (private).
It is to the interest of merchants or bankers who dealin 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.
A bill of exchange (banker's).A bill of exchange (banker's).A bill of exchange (banker's).
Two illustrations of bills of exchange are given in this lesson. Each is drawn in duplicate. The original is soldor 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 steamerCardiff, 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.