Nevertheless, in practice merchants do not avail themselves of these facilities to the extent that might have been expected. The nature of forward dealings in exchange is not generally understood. The rates are seldom quoted in the newspapers. There are few financial topics of equal importance which have received so little discussion or publicity. The present situation did not exist before the war (although even at that time forward rates for the dollar were regularly quoted), and did not begin until after the “unpegging” of the leading exchanges in 1919, so that the business world has only begun to adapt itself. Moreover, for the ordinary man, dealing in forward exchange has, it seems, a smack of speculation about it. Unlike Manchester cotton spinners, who have learnt by long experience that it is not the hedging of open cotton commitments on the Liverpool futures market, but the failure to do so, which is speculative, merchants, who buy or sell goods of which the price is expressed in a foreign currency, do not yet regard it as part of the normal routine of prudent business to hedge these indirect exchange commitments by a transaction in forward exchange. It is important, on the other hand, not to exaggerate the extent to which, at the present time, merchants can by this means protect themselves from risk. In the first place, for reasons, some of which will be considered below, it is only in certain of the leading exchanges that these transactions can be carried out at a reasonable charge. It is not clear that even the banks themselves have yet learnt to look on the provision for their clients of such facilities at fair and reasonable rates as one of the most useful services they can offer. They have been too much influenced, perhaps, by the fear that these facilities might tend at the same time to increase speculation. But there is a further qualification, not to be overlooked, to the value of forward transactions as a protection against risk. The price of a particular commodity, in terms of a particular currency, does not exactly respond to changes in the value of that currency on the exchange markets of the world, with the result that a movement in a country’s exchanges may, in the case of a commodity of which that country is a large seller or a large purchaser, change the commodity’s world-value expressed in terms of gold. In that case a merchant, even though he is hedged in respect of the exchange itself, may lose, in respect of his unsold trading stocks, through a movement in the world-value of the commodity he is dealing in, directly occasioned by the exchange fluctuation. * * * * * If we turn to the theoretical analysis of the forward market, what is it that determines the amount and the sign (whether plus or minus) of the divergence between the spot and forward rates as recorded above?