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A knowledge of foreign money and exchange of the principal foreign countries is absolutely necessary in transacting business with foreign countries. Both the buying and the selling formalities require a knowledge of the monetary units and exchange value as it relates to the dollar. Foreign exchange is a study by itself and specialization in that line is followed by banks, the employees of which spend years at actual experience in order to become qualified as experts in foreign banking. Because of the close association of foreign banking with the traffic profession, some knowledge of the subject should be possessed by the traffic and transportation



Material assistance may be gained by first acquiring & knowledge of the principal standards of the monetary units, together with the intrinsic equivalents of such foreign currency to the United States standard. The monetary unit tables on pages 578 and 579 of the Appendix show the normal relationship of foreign money to the United States standard. These comparisons have been compiled by the Bureau of the Mint of the Treasury Department. However, such values are subject to fluctuation from day to day, according to the value of exchange.

In the sales of goods for foreign consumption many complications arise, even after a contract has been executed. The general custom of paying for goods shipped to foreign countries are: 1, Cash or payment at the time order is placed, or, where special manufacturing is necessary, payment in advance; 2, Payment through bank based upon a Letter of Credit (See Forms 43 and 44, Pages 527, 528); 3, Open Credit, or Open Account, for a certain period, usually 60 to 90 days; 4, Payment by an "at sight" or "time" draft (See Form 42, Page 526). Therefore, it is necessary that the manner in which payment is to be made should be arranged at the time negotiation for the purchase of goods is conducted by a foreign house. A large volume of business is transacted through Letters of Credit.



Upon purchase by a foreign house, the buyer establishes a deposit or credit at his local bank, which in turn communicates with a bank located in or adjacent to shipping points. In a Letter of Credit is shown the conditions under which the foreign bank will accept a call upon the domestic bank for payment. These conditions are usually stipulated by the buyer. The domestic bank notifies the shipper of the arrangements for payment to be made with the foreign bank, and upon execution of papers outlined in the Letter of Credit, payment is made to the shipper. The supplier should present with his invoice such documents as are called for in the Letter of Credit, the principal ones being bills of lading, insurance certificates (also War Risk Insurance when necessary), consular invoices, certificates of origin and, ofttimes, packing list. In a few cases dock receipts or warehouse receipts are stipulated in the Letter of Credit, and will be accepted as negotiable paper by the bank; but, the conditions of the Letter of Credit are always adhered to by the domestic bank. A Letter of Credit can be amended only by having the foreign buyer communicate with his local bank, instructing it to make the corrections desired. In making out the bill of lading it is the general practice to consign to the order of the shipper, notify the buyer.




There are two kinds of Letters of Credit—"Confirmed," or "Irrevocable,” and "Unconfirmed," or "Revocable." The former cannot be withdrawn, while the latter may be withdrawn and cancelled.


In transacting business by draft, the necessary documents should accompany the invoice the same as in the case of a Letter of Credit; in other words, all documents should accompany the draft that are stipulated in the arrangements between buyer and seller. These papers should be attached to the draft delivered to the bank, with instructions to the bank to forward the documents to the financial connection at destination. In making out a draft, it is the general custom to prepare duplicates or triplicates but never less than duplicates. In his instructions to the bank the shipper should specify where the draft is to be presented for payment.

There are two kinds of drafts, i. e., time draft and sight draft. The former is payable at the time stated therein, while the latter is payable whenever presented to the payee.


The large banks of the United States today are materially assisting the American producers in securing a fopting in foreign countries by establishing branches or banking connections whereby a better financial understanding may be gained for the benefit of both buyer and seller. Monthly bulletins are issued by the principal banks. The foreign commercial man should be acquainted with the banks issuing such circulars and request that his name be placed on their mailing lists, in order to keep in closer touch with the foreign conditions so far as they relate to banking.

The Edge Act, which has been strongly indorsed by the Federal Reserve Board, was introduced in the United States Senate on July 15, 1919, and became a law upon being signed by the President on December 24, 1919. With the eractment of this

law, supplementing the amendment of September 7, 1916, and the McLean Act, it is FINANCING UN

hoped that much of our great foreign trade can be retained to the benefit of American DER EDGE ACT manufacturers and producers. The Act provides for the Federal incorporation and

regulation of banking institutions for the purpose of engaging in international or foreign banking, or other foreign financial operations, or for engaging in such operations in a dependency or insular possession of the United States, either directly or through the agency, ownership or control of local institutions in such places.


Two distinct classes of corporations are contemplated, although the line of demarcation between them may not always be closely drawn-one class doing principally a banking business, the other an investment business, taking long-time paper,

including bonds and mortgages, and issuing their own debentures against them. The CLASSES CORPORATIONS class of corporations carrying on a banking business may conduct nearly every kind

of financial operation, but may not receive deposits in the United States except such as may be incidental to or for the purpose of carrying out transactions abroad. Both classes of corporations are prohibited from carrying on any part of their business activities in the United States except such as in the opinion of the Federal Reserve Board may be incidental to their foreign or international business.





The practicability of financing our export trade through the organization of such corporations as are contemplated by the Edge Act is clearly expressed by the following statement by Senator Edge:

"The procedure under the prospective law is simplicity itself; it is merely the application to international trade of the accepted method by which John Doe sells his business to penniless Richard Roe and yet obtains actual cash payment in the trans

action. The American exporter or manufacturer may sell his goods to an imDER EDGE ACT poverished foreign purchaser-a foreign government or a private concern. One of the

proposed corporations then may accept collateral from the purchaser, acceptable to the Federal Reserve Board, and against this issue debentures to sell to investors, and the money so received will be paid to the American seller. Through the powers granted to these proposed corporations, they may accept even mortgages on the plants or other real property of the purchasers *** Thus a foreign concern in need of raw material may obtain it by giving a mortgage on its plant, and eventually by turning this raw material into finished product will be able to redeem its collateral and to put aside a little profit besides."



The granting of long-term credits, however, for periods beyond ninety days, which are much needed by the European purchaser of our goods, offers a far more serious situation, and present facilities are admittedly inadequate. Let us suppose, for instance, that a corporation whose properties are in the devastated section of France desires to buy American machinery to start rebuilt factories in operation, and that it desires to buy on credit, giving as security for the purchase price only corporate bonds which mature eight or ten years hence. Even though satisfied as to the safety of the

security offered as collateral for the extension of the credit, the American manufacturer CREDITS UNDER

is in most cases unable to carry it until maturity, because this would tie up and deprive him, for many years, of the use of the capital which he requires in his business. Therefore, the seller is compelled to lose the sale unless the bonds can be quickly converted into cash. It is possible here to relieve the situation by an arrangement made with a corporation organized under the Edge Act to take such foreign securities, advance the cash and within such limitations as the law and the Federal Reserve Board prescribe, issue its own notes, which could then be offered to the public for investment. By this method the purchaser at once receives the purchase price, and the European buyer obtains the goods. The credit is successfully passed to the American investor.

The value of the Edge Act lies in this, namely, that it provides for the organization of corporations having the right to engage in international and foreign banking, in which national banks may participate to a limited degree, thereby affording a means to make available quick and large capital for the purpose of extending credit.

In short, the Act provides a sound, well-regulated system of financing our foreign VALUE OF EDGE trade whereby such collateral as foreign purchasers possess may be taken in payment

of American goods. The new opportunities of the Edge Act, however, should not be overestimated, as corporations organized under State laws have been financing foreign trade in substantially the same manner as therein provided, the Edge Act merely adding, as additional inducement, the prestige which Federal incorporation and Federal regulation offer.




The enactment of the Edge Act should prove of especial value to corporations that have combined under the Webb-Pomerene Act for the purpose of carrying on an export business, since, in effect, it affords a practical method under Federal supervision whereby industrial or producing combinations may extend large credits abroad. A group of manufacturers, for instance, who have formed a combination under the Webb-Pomerene Act to sell their products abroad, may now combine to finance such sales and thus, in the language of Senator Edge, "will be able to keep all the reins in their own hands."


Financial corporations of the kind contemplated by the Edge Act have already been organized, with very broad powers, under the statutes of the several States. Among these institutions may be mentioned the Asia Banking Corporation, the Mercantile Bank of the Americas, Inc., the Foreign Discount Corporation, etc. Some of these corporations are now partially under the control of the Federal Reserve Board where national banks contribute to their capital, since they are required to restrict their operations and conduct their business in such manner and under such limitations as the Federal Reserve Board may prescribe. It was felt, however, that control through agreement is not as satisfactory as that exercised through incorporation under a Federal act.

In addition to the general administrative powers incidental to organization, corporations, under regulations prescribed by the Federal Reserve Board, are granted general banking powers, as follows:


(1) To purchase, sell, discount and negotiate, with or without their

endorsement or guaranty, notes, drafts, checks, bills of exchange,
acceptances (including bankers' acceptances), cable transfers and

other evidences of indebtedness;
(2) To purchase and sell, with or without their endorsement or guaranty,

securities, including the obligations of the United States or any

State thereof, but not including shares of stock;
(3) To accept bills or drafts drawn upon them subject to such limita-

tions and restrictions as the Federal Reserve Board may impose;
(4) To issue letters of credit;
(5) To purchase and sell coin, bullion and exchange;
(6) To borrow and lend money;
(7) To issue debentures, bonds and promissory notes under such general

conditions as to security and under such limitations as the Federal
Reserve Board may prescribe, but in no event having liabilities
outstanding thereon at any one time exceeding ten times the

capital stock and surplus of the issuing corporation;
(8) To receive deposits outside of the United States, and only such

deposits within the United States as may be incidental to or for
the purpose of carrying out transactions in foreign countries or
dependencies or insular possessions of the United States; but a


corporation receiving authorized deposits in the United States must carry reserves in such amounts as the Federal Reserve Board may prescribe, in no event less than 10 per centum of its deposits;


(9) To exercise such powers in general as are incidental to those con

ferred by the law, or such as in the opinion of the Federal Reserve Board may be usual in connection with the transaction of the business of banking or other financial operations in the countries, colonies, dependencies or possessions in which they are transacting business and which are not inconsistent with the powers specifically granted by the law.

None of the powers conferred are to be construed as prohibiting the F Reserve Board, under its power to prescribe rules and regulations, from lin the aggregate amount of liabilities of any or all classes incurred by any such poration and outstanding at any one time.

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