Bills of exchange have been used in settling commercial transactions since very early times. The Romans appear to have employed them to some extent, but it is to the early Italian, and even more to the early Jewish merchants, that we owe the development of the system. By the fourteenth century the use of bills was firmly established, and their form, and the laws and customs relating to them, were much the same as at the present day. Before inquiring into the effects which the foreign exchanges have on our Money Market, we will state clearly what a foreign bill of exchange really is. When a foreign bill is bought, what is it that is bought? The transaction is simply this, that so much money is paid here for the right to so much currency of a certain country to be delivered at once, or at a given date, at a certain place, to the buyer of the bill or to his nominee. The bill itself is merely an order to pay, and the transaction resolves itself into bartering so much money of one country for so much money of another country, to be delivered at a specified place and time. The value of the imports of the United Kingdom for 1901 was 522 millions of pounds, and of the exports 348 millions, together nearly 900 million pounds; and to understand how these huge transactions were settled financially, it is necessary to have some knowledge of the principles and customs of foreign exchanges. It is common knowledge that we do not pay gold for our imports nor receive gold for our exports. The imports are paid for mainly by the exports, the balance being made up of sums due to us for interest on capital invested abroad, for repayment of money invested abroad, and for freights, etc. _Some_ gold, however, does enter into the settlement of these transactions. This gold is sent from country to country, centre to centre, and further on in this chapter we shall see the causes of these movements and the effects arising from them. There are certain technical terms used in connection with the foreign exchanges which must be clearly understood before it is possible to follow the various fluctuations in exchange rates, and the effect on our monetary position which such fluctuations produce. We will consider one or two transactions between London and Paris as a practical illustration of these terms. Suppose a London merchant, A, owes to a Paris merchant, B, 25,000 francs. How can he pay that debt, and how much will it cost him to do so? He may either buy a draft on Paris and remit it to B, or instruct B to draw on him, or he may actually send gold. For the moment we will assume that he decides to send gold. How many sovereigns will A have to send so that B may receive the equivalent of the 25,000 francs due to him?