These are the principal sources from which foreign exchange originates--shipments of merchandise, sales abroad of securities, transfer of foreign banking capital to this side, sale of finance-bills. Other causes of less importance--interest and profits on American capital invested in Europe, for instance--are responsible for the existence of some quantity of exchange, but the great bulk of it originates from one of the four sources above set forth. In the next chapter effort will be made to show whence arises the demand which pretty effectually absorbs all the supply of exchange produced each year.
Turning now to consideration of the various sources from which springs the demand for foreign exchange, it appears that they can be divided about as follows:
1. The need for exchange with which to pay for imports of merchandise.
2. The need for exchange with which to pay for securities (American or foreign) purchased by us in Europe.
3. The necessity of remitting abroad the interest and dividends on the huge sums of foreign capital invested here, and the money which foreigners domiciled in this country are continually sending home.
4. The necessity of remitting abroad freight and insurance money earned here by foreign companies.
5. Money to cover American tourists' disbursements and expenses of wealthy Americans living abroad.
6. The need for exchange with which to pay off maturing foreign short-loans and finance-bills.
1. Payment for merchandise imported constitutes probably the most important source of demand for foreign exchange. Merchandise brought into the country for the period given herewith has been valued as follows:
1913 $1,813,008,000 1912 1,653,264,000 1911 1,527,226,000 1910 1,556,947,000 1909 1,311,920,000
Practically the whole amount of these huge importations has had to be paid for with bills of exchange. Whether the merchandise in question is cutlery manufactured in England or coffee grown in Brazil, the chances are it will be paid for (under a system to be described hereafter) by a bill of exchange drawn on London or some other great European financial center. From one year's end to the other there is constantly this demand for bills with which to pay for merchandise brought into the country. As in the case of exports, which are largest in the Fall, there is much more of a demand for exchange with which to pay for imports at certain times of the year than at others, but at all times merchandise in quantity is coming into the country and must be paid for with bills of exchange.