Except when otherwise stated, the rates quoted in the “Course” are for bills having three months to run, or in technical language, they are the rates for the “Long exchange.” Rates quoted as “cheque,” “sight,” or “demand,” are known as the “Short exchange.” The rates of the Long exchange are arrived at as follows: We will suppose that a merchant in London has to pay a debt in Paris of 25,000 francs, and for simplicity we will assume that the sight rate on Paris is 25. If the merchant buys a sight draft on Paris for 25,000 francs and remits it to his creditor, it closes the transaction, and the remittance has cost the merchant £1,000. But if instead of buying a sight draft at this rate he bought a three months draft, what would be the result? When he sent this draft to his friends in Paris they could not credit him with it at once, and so close the transaction, as they would then be out of their money for three months. So the parties in Paris to whom the draft was remitted would discount it with their banker, and credit the London merchant with the _proceeds only_. He would also be charged for a bill stamp, and in addition, he would be liable for any contingencies which might arise, interfering with the due payment of the bill, until payment was actually made. So instead of the London merchant being credited with 25,000 francs, he would only be credited with 25,000 francs _minus_ discount at the French market rate, say 4 per cent. for three months = 250 francs, and _minus_ the bill stamp = 12·5 francs, that is 24,737·5 francs. Moreover, he would be under liability on his endorsement of the draft until its maturity, and for this he ought to receive some consideration. Consequently when the London merchant buys his bill, if a three months bill is offered him instead of a sight draft, he demands an allowance in the rate sufficient to cover interest at the foreign market rate, plus stamp, plus allowance for contingencies. And the rate for such a transaction will be arrived at as follows: First, as the presumed sight rate is 25, to this must be added three months’ interest at the foreign market rate (say at 4 per cent.) on 25, which is ·25, bill stamp at ½ per mille must also be added, say ·01¼, and an allowance for risk which we may take at ·00¾. Thus the rate for such a three months draft would be 25 + ·25 + ·01¼ + ·00¾ = 25·27. Now at this new rate, or “long rate” of 25·27, let us suppose our merchant to buy and remit a draft of 25,270 francs for £1,000. His friends in Paris will then credit him with the full amount of his debt, and a little more, being the allowance for risk. It must be distinctly borne in mind that adding interest, etc., to the “sight” rate to obtain the “long” rate only holds good when we are dealing with rates quoted in _foreign currency_, and that when we deal with rates quoted in _sterling_ we must deduct these allowances from the short rate instead of adding them.