Where documents accompany the draft and the merchandise is formally hypothecated to the buyer of the draft, it might not be thought that the standing of the drawer would be of such great importance. Possession of the merchandise, it is true, gives the banker a certain form of security in case acceptance of the bill is refused by the parties on whom it is drawn or in case they refuse to pay it when it comes due, but the disposal of such collateral is a burdensome and often expensive operation. The banker in New York who buys a sixty-day draft drawn against a shipment of butter is presumably not an expert on the butter market and if he should be forced to sell the butter, might not be able to do so to the fullest possible advantage. Employment of an expert agent is an expensive operation, and, moreover, there is always the danger of legal complication arising out of the banker's having sold the collateral. It is desirable in every way that if there is to be any trouble about the acceptance or payment of a draft, the banker should keep himself out of it. The successive steps in an actual transaction are as follows: The banker in New York having ascertained by cable the rate at which bills "to arrive" in London by a certain steamer will be discounted, buys the bills here and sends them over, with instructions that they be immediately discounted and the proceeds placed to his credit. On this resulting balance he will at once draw his demand draft and sell it in the open market. If, from selling this demand draft, he can realize more dollars than it cost him in dollars to put the balance over there, he has made a gross profit of the difference. To illustrate more specifically: A banker has bought, say, a L1,000 ninety days' sight prime draft, on London, documents deliverable on acceptance. This he has remitted to his foreign correspondent, and his foreign correspondent has had it stamped with the required "bill-stamp," has had it discounted, and after having taken his commission out of the proceeds, has had them placed to the credit of the American bank. In all this process the bill has lost weight. It arrived in London as L1,000, but after commissions, bill-stamps, and ninety-three days' discount have been taken out of it, the amount is reduced well below L1,000. The net proceeds going to make up the balance on which the American banker can draw his draft are, perhaps, not over L990. He paid so-and-so many dollars for the L1,000 ninety-day bill, originally. If he can realize that many dollars by selling a demand draft for L990 he is even on the transaction. IV. THE OPERATION OF MAKING FOREIGN LOANS In its influence upon the other markets, there is perhaps no more important phase of foreign exchange than the making of foreign loans in the American market. The mechanics of these foreign loaning operations, the way in which the money is transferred to this side, etc., will now be taken up.