Underlying the whole business of foreign exchange is the way in which obligations between creditors in one country and debtors in another have come to be settled--by having the creditor draw a draft directly upon the debtor or upon some bank designated by him. A merchant in New York has sold a bill of goods to a merchant in London, having thus become his creditor, say, for $5,000. To get his money, the merchant in New York will, in the great majority of cases, draw a sterling draft upon the debtor in London for a little over £1,000. This draft his banker will readily enough convert for him into dollars. The buying and selling and discounting of countless such bills of exchange constitute the very foundation of the foreign exchange business. Not all international obligations are settled by having the creditor draw direct on the debtor. Sometimes gold is actually sent in payment. Sometimes the debtor goes to a banker engaged in selling drafts on the city where the obligation exists, gets such a draft from him and sends that. But in the vast majority of cases payment is effected as stated--by a draft drawn directly on the buyer of the goods. John Smith in London owes me money. I draw on him for £100, take the draft around to my bank and sell it at, say, 4.86, getting for it a check for $486.00. I have my money, and I am out of the transaction. Obligations continually arising in the course of trade and finance between firms in New York and firms in London, it follows that every day in New York there will be merchants with sterling drafts on London which they are anxious to sell for dollars, and vice versa. The supply of exchange, therefore, varies with the obligations of one country to another. If merchants in New York, for instance, have sold goods in quantity in London, a great many drafts on London will be drawn and offered for sale in the New York exchange market. The supply, it will of course be apparent, varies. Sometimes there are many drafts for sale; sometimes very few. When there are a great many drafts offering, their makers will naturally have to accept a lower rate of exchange than when the supply is light. The par of exchange between any two countries is the price of the gold unit of one expressed in the money of the other. Take England and the United States. The gold unit of England is the pound sterling. What is the price of as much gold as there is in a new pound sterling, expressed in American money? $4.8665. That amount of dollars and cents at any United States assay office will buy exactly as much gold as there is contained in a new British pound sterling, or sovereign, as the actual coin itself is called. 4.8665 is the mint par of exchange between Great Britain and the United States.