BANK LETTER OF CREDIT.

A Bank Letter of Credit is somewhat similar to the Circular Notes issued by them, but instead of the payment being made against notes of certain specified sums, the amount paid is recorded on the back of the credit. The form of a bank letter of credit would be as follows::

Example of a Bank Letter of Credit drawn in London.

This Circular Letter of Credit will be presented to you by Mr. Thomas Brown, and we request you to hold at his disposal the sum of £300, say Three Hundred Pounds, and to pay him in such sums as he may require. Please to endorse hereon any advances made to him, and to draw upon us at sight, which we hereby agree to accept.. This Credit is to continue in force until the 1st July, 1901.

We remain,

Your obedient Servants,

Manager.
Secretary.

The reverse side of a letter of credit is as follows:

Example of the Reverse Side of a Bank Letter of Credit.

When a Letter of Credit is issued by a bank the customer's account is debited with the amount, and the correspondent's account is credited, so that when the bills drawn against the credit are presented for payment the correspondent's account is debited with the amount in the banker's books. As there is always a demand abroad for bills drawn on London, the foreign correspondent is usually able to make a profit on the transaction by the variations in the rates of exchange.

A London bank is also required to open Credits for the travelling customers of foreign banks in the same manner as the issue of a letter of credit just described.

Example of a Letter of Credit drawn Abroad.

BUENOS AYRES,

19

THE BLANK BANK,

London.

DEAR SIRS,

We shall be obliged by your placing the sum of Five hundred pounds (£500) at the disposal of Mr. John Jones, making the whole amount, or any part of it, available to him at other places if desired. This Credit to remain in force for three months from this date. Please debit our account with payments made under this Credit, and favour us with your accustomed early advice of same.

I am,

Your obedient Servant,

Mr. John Jones will sign (his signature).

MARGINAL CREDITS.

Manager.

London is the financial centre of the world, and consequently we find that shipments of goods from one country to another are often paid for by means of bills of exchange drawn on London.

For example, a merchant in Melbourne, Australia, is an importer of goods from America, and wishes to pay the buyer, who resides in New York, and in order to do this the Australian merchant obtains from the Melbourne Bank what is known as a "Marginal Credit ".

The Australian Bank informs its agent in New York that a credit has been granted in favour of the American firm, which is allowed to draw on the London branch of the Australian Bank, provided the conditions under which the credit is granted are complied with. The margin of the bill of exchange is as follows:

Example of a Marginal Credit.

We, as agents of the

Bank, hereby certify that A. B. has complied with the conditions of a Credit issued by that Bank at Melbourne, No. dated 1st January, 1901, so far as regards the set of exchange, of which the annexed is the first, and that the first presented bill of such set of exchange, if drawn by them in terms of the said credit before 1st July, 1901, for £500, payable ten days after sight, will be entitled to due honour by the Bank, provided

this Certificate as annexed to such bill be presented herewith and delivered to the said Bank in acceptance thereof.

This Certificate is attached to the Bill, which is as follows:

No..

£500.

NEW YORK,

1901.

Ten days after this sight pay this First of Exchange (second and third of the same tenor and date being unpaid), to the order of W. B. & Co., the sum of Five Hundred Pounds, as per Melbourne Branch, Credit No.

dated

BANK OF ENGLAND.

The Bank of England was the first Joint Stock Banking Association established in this country; it dates back from its inception on the 27th July, 1694, and is the foremost in stability, magnitude, and importance of all the great financial institutions in the world.

From the day of its foundation down to the present time the Bank of England has discharged a double function it is the bank of the State, as well as one of the banks for the public. It transacts the entire banking business for the Government, receiving its revenues from the collectors all over the country, paying all outgoings, managing the public debt, issuing Exchequer and Treasury bills, and advancing money when the country's expenditure temporarily overtakes income.

The bank is the sole repository of our stock of bullion, and as the repository of the Government balance of the bullion reserve, and of the ultimate banking reserve of the country, it is invested with a certain stateliness and dignity of standing which place it hors de concours, and which restrain it from working as other banks do, solely with a view to dividend earning.

THE BANK PRICE OF GOLD.

The law compels the Bank of England to take at a fixed price all the gold that may be offered to it. The bank price of gold is £3 17s. 9d. per ounce of standard gold, and all persons are entitled to demand from the Issue Department Bank of England Notes in exchange for gold bullion at the rate of £3 17s. 9d. per ounce of standard gold, the person tendering the same to be at the expense of melting and assaying it.

THE MINT PRICE OF GOLD.

The holder of gold bullion is not bound to go to the Bank of England, the coinage of gold being gratuitous in this country, and he may, if he so pleases, deliver it, if of sufficient amount, direct to the Master of the Mint, who will in due time return it in the shape of sovereigns at the rate of 1,869 sovereigns for every 480 ounces metal of standard fineness, which is equal to the price of £3 17s. 10d. per ounce. This is known as the Mint

Price of gold, and is 13d. per ounce higher than the bank price, which, as we have stated, is fixed at £3 17s. 9d. per ounce standard.

BANK NOTES.

There are two forms of bank notes in circulation— Notes issued by the Banks of England and Ireland, and Notes issued by the other various English, Scotch, and Irish banks.

The Notes of the Banks of England and Ireland are a legal tender in their respective countries, but their issue is limited by Acts of Parliament, and the holder is entitled to demand coin for them on presentation to the bank which issued them.

The notes of the other various English, Scotch, and Irish banks are not a legal tender, but form a useful circulating medium in the country.

BANK OF ENGLAND NOTES.

The Bank of England note was made a legal tender in England and Wales in 1833, and it may be legally tendered in payment of all sums above £5 everywhere except at the bank itself that is to say, the Bank of England cannot compel its creditors to take its own notes, but gold can be demanded there.