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 name
_exchange_.
[Illustration: Foreign exchange.]
To illustrate the principles of exchange let us suppose that the
following transactions have occurred: