The reasons for these terms are apparent on giving the matter a little consideration. If an exchange is tending to such a figure that gold is likely to come to us, it is regarded as favourable, because if gold does come, it strengthens the Reserve of the Bank of England; and a strong Reserve means a low value for money here, which is generally considered to be good for trade. The reverse applies to the “unfavourable” exchange. Having now arrived at an understanding of the terms Mint Par and Export and Import Gold Points, we will consider how and why rates fluctuate between these figures. As regards the merchants A in London and B in Paris, we have so far assumed that they have settled their indebtedness in gold. Such a mode of settling debts is unusual in international transactions; the ordinary course for A to follow would be either to buy a draft on Paris and remit it to B, or for B to draw a bill on A and sell it. If the aggregate of debts between England and France exactly balanced, it can be assumed that in theory the exchange would stand at the Mint Par, because the total amount of drafts for sale would exactly equal the demand. But amid the multitudinous transactions of modern business we never are in a position to know when the mutual transactions of two countries balance, and the fluctuations in the rate of exchange are primarily due to the relative degrees of urgency of buyers and eagerness of sellers—to a question of supply and demand. Let us suppose that as a result of the aggregate dealings between France and England, France at one period owes us more than we owe her. Now it will be apparent that in the settlement of the transactions comprised in the aggregate, the merchants in France will find a difficulty in procuring sufficient drafts to settle all their indebtedness, and consequently there will be a likelihood of some of the merchants there having to send gold and bear the cost of remittance. Hence there will be competition among them to obtain what bills are offering—demand will exceed supply—and rather than be forced to send gold, buyers of drafts on London will be willing to pay more for them than the face value represented; that is, they will be willing to pay more than Mint Par. For example, B in Paris owes A in London £1,000. He wishes to buy a draft for that amount, and expects to pay only 25,220 francs for it. He will find that there are many buyers who are competing for the available drafts, and to secure a remittance he perhaps may offer 25,250 francs, that is, an exchange at the rate of 25·25. Possibly he may obtain his draft at this price; but if buyers are urgent, sellers will take advantage of the situation and raise their price still further. If the demand continue, the price may be raised to such a level that B will find that he can send gold without incurring extra expense. When this level is reached, gold is likely to pass from Paris to London.