Whether

gold comes from or goes to Europe depends directly on the state of foreign exchange. If bills of exchange (drafts) on Europe are in exce ive supply as a consequence of America’s having an unusually large credit balance in Europe the bills fall below par—that is, they fall in their marketable value below their actual money value. If they fall enough they can be employed to bring gold from Europe. Banks or bankers who are in the exchange busine buy the ( bills at their depreciated value and buy gold in Europe with them at their full value. They must, however, have fallen ' -enough to cover the expense of packing, freight, insurance and lo of interest on the gold while the gold is in transit. These i items figure up something like 3-8 of 1 per cent of the value of the gold. Therefore, any material discount on exchange beyond this amount will permit the importation of gold at a | profit. When gold is exported the situation is reversed. Then, exchange must command a premium—be selling above par. Banks or bankers sell bills of exchange or drafts at a premium to merchants or others who have remittances to make to Europe and buy gold at its face value to ship to Europe to meet the drafts—to pay them. The premium on the drafts must be sufficient to defray the expenses connected with the exportation of the gold and something besides for profit on the operation. 229