When a time draft is presented to the drawee, if he desires to pay it, he writes across its face the word " "Accepted," the date of acceptance, and his name. The draft then becomes due, the number of days stated in the draft, from the date of acceptance, instead of from the date of the draft. A time draft, thus accepted, in reality becomes a promissory note. Sight drafts do not need to be accepted, as they are usually paid when presented. 22. The drawer of a draft is the person that requests payment to be made; the drawee is the person requested to make such payment; and the payee is the person to whom the money is to be paid. 23. A draft is accepted by the drawee if he writes on its face the word "Accepted" and the date of acceptance, together with his name. He thus becomes liable for its payment. 24. Discount is allowed on time drafts, and is computed on the amount or on the face of the draft. FORM OF A DRAFT. Scranton, Pa., Jan. 3, 1898. $465,25 At sight, pay to the order of Henry Hudson, Four Hundred Sixty-five 25 Dollars, value received, and charge The Colliery Engineer Company. to the account of To Brown & Bird, EXPLANATION.-The Colliery Engineer Co. corresponds to A in Art. 19, Brown & Bird to B, and Henry Hudson to C. Henry Hudson endorses the draft, "Pay to the order of J. R. Robinson," and signs his name; he forwards the draft to J. R. Robinson, of Chicago (who corresponds to D), and he presents it to Brown & Bird for acceptance. DOMESTIC EXCHANGE. 25. Exchange may be at par, above par, or below par. For example, consider two cities, as New York and New Orleans. If New Orleans owes more money in New York than New York owes in New Orleans, there will be more persons in New Orleans who wish to buy drafts on New York than there are sellers; hence, a buyer in New Orleans will be willing to pay a seller more than the face value for a draft on New York. Therefore, in New Orleans, exchange on New York will be above par, or at a premium. In New York, however, there will be more sellers than buyers, and the seller will be willing to take less than the face of a draft on New Orleans. Therefore, in New York, exchange on New Orleans will be below par, or at a discount. If there is an equality of debts between New York and New Orleans, exchange will be at par. The premium or discount is only so much as will suffice to cover the cost of safely transferring the money from the debtor city to the creditor city. 26. To find the cost of a sight draft. EXAMPLE 1.-Find the cost of a sight draft on Baltimore for $2,800, exchange being at 1% premium. SOLUTION.- $2,800.005 $14; $2,800+ $14 = $2,814. Ans. Or, $2,800 × 1.005 = $2,814. Ans. EXAMPLE 2.—What must be paid for a sight draft on New York for $3,675, at 3% discount? SOLUTION. Or, $3,675 × (1.0075) = $3,647.44. Ans. 27. Rule. Find the premium or the discount. The sum of the face of the draft and the premium, or the difference between the face of the draft and the discount, will be the cost of the draft. 1. EXAMPLES FOR PRACTICE. 28. Solve the following examples: Find the cost of a sight draft for $1,876 at (a) 14% premium; (b) 1% discount. (a) $1,899.45. Ans. (6) $1,866.62. 2. The face of a sight draft is $7,875.56, and the premium is %. Find its cost. Ans. $7,938.56. 3. How much will it cost to pay, by a sight draft on San Francisco, a bill of $7,528, when exchange is at 11% discount? Ans. $7,415.08. 29. To find the cost of a time draft. EXAMPLE.—Find the cost of the following draft at 3% premium, when money is worth 5% interest, allowing 3 days of grace. $4,800,000 New York, July 1, 1898. Ninety days after sight, pay to William Wood, or order, Four Thousand Eight Hundred Dollars, value received, and charge to my account. To Henry Brothers, New Orleans, La. John Steinway. SOLUTION. $4,800 .01291 = $62 = int. of $4,800 at 5% for 93 da, $4,738 = proceeds of $4,800. EXPLANATION. The bank discount at 5% for 93 days on $4,800 is $62; hence, the proceeds of $4,800, payable in 93 days, is $4,738. The premium on the face of the draft is $36. This, with the proceeds, is the cost of the draft. 30. Rule.-Find the proceeds of the face of the draft for three days more than the time the draft has to run. Find, also, the premium or the discount, on the face of the draft. The sum of the proceeds and the premium, or the difference between the proceeds and the discount, will be the cost of the draft. If days of grace are not allowed in the state where the draft is payable, find the proceeds for the time the draft has to run, and then proceed as before. NOTE.-When grace is allowed it is always 3 days. Whether or not grace is allowed in a given state can be ascertained at any bank. If grace is to be understood in the examples that follow, the fact will be stated. EXAMPLES FOR PRACTICE. 31. Solve the following examples: 1. The face of a draft is $5,000; the discount is 1; the time to elapse before it is payable is 60 days. Find the cost of the draft when Ans. $4,922.50. money is worth 6%. 2. How much will it cost to pay by draft payable 30 days after sight, with grace, a bill of $3,250, at a premium of 14%, money being worth 6%? Ans. $3,280.87. 3. When exchange is at a discount of , and money is worth 4%, what must be paid for a 60-day time draft for $6,000? Ans. $5,913. 32. To find the face of a sight or a time draft. EXAMPLE. What is the face of a sight draft bought for $3,000, exchange being 1% discount? SOLUTION. $1.00 $.005 = $.995. EXPLANATION.-One dollar of the face will cost $0.995; hence, there must be as many times one dollar of the face as .995 is contained times in the entire cost, or 3,015.08. EXAMPLE. Find the face of a 60-day draft costing $2,343.51 when money is worth 7% and exchange is at §% premium, allowing grace. SOLUTION.-When the place where the draft is to be paid is not stated, days of grace should be allowed. Hence, the time is 60+ 3 = 63 days. Interest of $1 for 63 days at 7% $0.01225. = Proceeds + premium = $0.98775 + $0.01375 = $1.0015. 33. Rule.-Divide the amount paid for the draft by the amount that will pay for $1 of its face. EXAMPLES FOR PRACTICE. 34. Solve the following examples: 1. Allowing grace, find the face of a 90-day draft costing $6,000, when discount is 11% and money is worth 5%. Ans. $6,156.48. 2. A man paid $484.72 for a 60-day draft, with grace, premium being 1%, and money worth 6% interest. What was the face of the Ans. $484.96. draft? 3. If a draft that is payable 30 days after sight with grace costs $2,800 when discount is and money worth 6%, what is its face? Ans. $2,836.88. 4. Find the face of a sight draft costing $1,200, when exchange is at 1% discount. Ans. $1,216.73. FOREIGN EXCHANGE. 35. Foreign bills of exchange are drawn in sets of two, called a set of exchange. These are numbered 1 and 2, and are sent by different mails; only the first presented for payment has any value. Formerly, foreign bills of exchange were drawn in sets of three, and are frequently so drawn now. 36. Exchange is at a premium or at a discount according to the balance of trade, or to the time that must elapse before payment is to be made. Thus, let A and B denote two countries engaged with each other in commerce. Suppose that the balance of trade is in B's favor. By this is meant that A owes B more than B owes A. Now, it is clear that A must send money at some risk and expense to B to equalize matters. If one were to get in A a draft payable in B, it would put A more deeply in debt to B. This fact would put a premium upon the draft, and a discount upon a draft drawn in B upon A. Again, a sight draft upon either country would cost more than a time draft. 37. The Secretary of the Treasury of the United States. issues, on the first of January of each year, a statement showing, in terms of its own gold monetary unit, the value of the monetary unit of each other country, that is, in dollars and cents. 38. The daily papers of our commercial cities give quotations showing the rates of exchange from day to day. One of these follows: |