remittances naturally preferred to use the facilities offered by banking institutions.

LETTER OF DELEGATION

Quite similar to a money order is a document known as a letter of delegation. It differs from the draft and the money order in that it is not a negotiable instrument. It is simply a letter written by a bank to a foreign correspondent which is advised to pay a certain sum of money to a beneficiary. The letter of delegation was used during the war in remitting funds from the United States to persons in Central Europe, since all negotiable instruments transferring funds to these countries were declared contraband by the Allies and liable to seizure. The letter of delegation has thus been used as an instrument for transmitting funds only under abnormal circumstances. In the ordinary course of business before 1914 and since the return of peace, it has largely been applied to the creation of bank credits for purchasing goods, and so the instrument will be treated more fully in its relation to trade financing. (See page 360.)

CABLE TRANSFER

Similar to the money order is the cable transfer. It is simply another method for transmitting funds, but is distinctive in that the order is given by a banker to his correspondent by cable or wireless.

TO FOREIGN DEPARTMENT,

MECHANICS & METALS NATIONAL BANK,

NEW YORK CITY, N. Y.

CONDITIONS: In making this transfer it is understood and agreed that neither The Mechanics & Metals National Bank of the City of New York nor its correspondents shall be liable for any loss or damage occasioned by, delays or errors in the transmission or execution of the message by telegraph or cable companies, or by acts or omissions of any of its correspondents, or by mistakes as to the identity of the payee, or due to any other cause beyond the said bank's control, the risks of which are assumed by the undersigned. If for any reason payment is not effected, the said bank shall not be liable for any sum in excess of the market value in New York of the amount of this transfer current at the time of the refund thereof.

Yours truly,

Richard Roe

SIGNATURE

200 wall street,N.Y.C.

ADDRESS

ILLUSTRATION 4

Application for a Cable Transfer

In all other respects the cable transfer is similar in nature to the money order, for upon receipt of the order the correspondent bank makes payment to the beneficiary. It is thus seen that the transfer of credit by cable is not evidenced by a negotiable instrument but merely by an informal communication between the remitting bank and its correspondent. In this respect the transaction is like the transfer of credit by means of the money order or of the letter of delegation and unlike the transmission of funds by the sight draft. In the latter case the bank selling exchange gives the buyer a negotiable instrument which he then forwards to the beneficiary. Similar to the procedure in the case of the money order, the person desiring to remit funds by cable transfer fills out an application form (see illustration 4) addressed to the bank, which then gives him a receipt. This is held by the remitter, while the order for payment is forwarded by the bank.

There has been a greater increase actually and proportionately since 1914 in the use of cable transfers over all other forms of exchange. It was long used whenever banks or business houses wished to make immediate transmission of funds, but the mechanical improvements of the wireless have tended to increase the number of such transactions. Also disturbed political and economic conditions since 1914 have stimulated the use of trans

fers over drafts. These instruments, forwarded by steamers, were often lost due to submarine attacks, preëmptory search by military officers and the general disorder of the international mails. Since the close of the war the continual fluctuations in foreign currencies influenced the value of even sight drafts, which take at least ten days in transmission. This element of uncertainty is greatly reduced by the cable transfer, which often effects payment to the beneficiary within a few hours.

Cable transfers are sent in code in order to save the number of words and so reduce the cost. However, this charge is usually added to the price of the exchange, and so is carried by the remitter and not by the bank. The total cost of sending a cable transfer therefore includes the value of the exchange, the cost of the cable, the government tax, and the charge for the test word.

Thus far consideration has been given to the sight draft, money order, and cable transfer, which are forms of foreign exchange requiring payment on demand. On the other hand, banker's bills may also be drawn not on a sight but on a time basis, and calling for payment not on demand but on a specified date or on a certain number of days after presentation to the drawee. These date or time bills are said to be either short or long according to whether their maturity is less or more than thirty days. Short bills may run for any period from one

to thirty days, while long bills have a maturity usually of from sixty to one hundred twenty, but seldom over one hundred eighty days.

Drafts may also be grouped with respect to their purpose. In general the sight draft and the cable transfer are used largely for commercial transactions involving the payment of goods and services such as freight charges and insurance premiums, while the money order and the letter of delegation are both applied to the forwarding of remittances abroad. Time bills find their greatest use in transmitting either short- or long-term capital from one country to another, and may represent either secured or unsecured extensions of credit.

When a bank sells foreign exchange, it may thus evidence the transaction in the form of either sight draft, money order, or letter of delegation, but each instrument represents a transfer of a portion of a balance with a foreign correspondent from the credit of the bank to the credit of the individual. Without the intervention of any of these credit instruments, the claim over a foreign balance may be transferred from a bank to an individual. This step is often taken by persons speculating in foreign currencies. The low value of continental currencies tempted many with the possibilities of vast profits arising from a return to pre-war rates. Such speculation could be conducted by purchasing mark, kronen, and ruble notes outright and storing