DD7.txt - In historical fact however cable drafts in the pre-World War I period were dominated by demand(also called sight bills as the exchange medium

DD7.txt - In historical fact however cable drafts in the...

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In historical fact, however, cable drafts in the pre-World War I period were dominated by demand (also called sight ) bills as the exchange medium for gold arbitrage. Purchased at a dollar market price in New York, the bill would be redeemed at it pound face value on presentation to the British drawee, with the dollar-sterling exchange rate give by the market price/face value ratio. When this rate was greater than the (demand bill) gold export point, American arbitrageurs (or American agents of British arbitrageurs) would sell demand bills, use the dollars thereby obtained to purchase gold from the U.S. Treasury, ship the gold to London, sell it to the Bank of England, and use part of the proceeds to cover the bills on presentation, with the excess amount constituting
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  • Fall '15
  • DR. Aimal

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