counting a trade acceptance at his bank, the seller must indorse it. This means that the merchant, by becoming an indorser for all of his customers, is contingently liable for all of their purchases from his house. Then, too, there is a tendency to convert customers who discount their bills into buyers by acceptance, the net result of which is to lengthen the credit period unduly. Lastly, it is said that payment for goods before they are received, as necessitated by the acceptance method of settlement, will tend to influence buyers to trade with the larger and more reliable houses, and thus eventually crowd out the smaller competing concerns.

From the standpoint of the purchaser, the trade acceptance offers some very important advantages. It makes it possible for the "time" buyer to purchase practically at "cash" prices. The weaker buyer is thereby placed on the same footing with those who generally discount their bills. Of course, this statement is based on the assumption that the widespread use of trade. acceptances will ultimately eliminate entirely the use of cash discounts, which is hardly probable. By promptly discharging his obligations, as represented by trade acceptances, the buyer will improve his credit standing at his bank. In order to be able to meet his obligations promptly, the buyer will also have to exercise care and caution so as to avoid putting out more paper than can be taken care of. This will do two things for the purchaser: it will cause him to be more conservative in his buying and avoid the danger of overloading with an unsalable stock of goods; secondly, it will tend to make him a better collector and more conservative in credit granting.

To be sure, some objections are raised on the part of buyers, primarily because the use of the acceptance method does not permit them to examine the goods before payment is made. A similar condition obtains, however, when goods are purchased on cash terms, or when the discount is to be taken advantage of by paying within ten days from date of invoice and the goods are longer in transit. In all of these cases, sufficient confidence must be placed in the seller's willingness to make adjustments and to heed just and reasonable claims. Another objection raised to the trade acceptance is that it removes profits from discounts on purchases offered for prompt payment of bills. This objection is particularly valid from the standpoint of buyers who are financially stronger than their competitors.

On the whole, the use of trade acceptances has not increased as rapidly as may be desired. In many instances some of the advantages claimed for trade acceptances have not materialized. When numerous small invoices are involved, it is more convenient to carry an open account. Many buyers find it more advantageous to borrow from their local banks funds with which to discount their bills. The most important reason, however, for the limited use of trade acceptances is probably the reluctance of merchants to change their habits of doing business.

Bank Acceptances.-A bank acceptance is a draft drawn upon a bank by a depositor or borrower, payable to a third party and accepted by the drawee. This instrument may be used advantageously by a buyer who wishes to buy on a cash basis

FIG. 6.-Bank acceptance secured by readily marketable staples.

but is unwilling to make payment until the goods are shipped, or until they have actually arrived. On the other hand, the seller may be unwilling to make shipment on an open account or upon a time draft, except at a great discount which is reflected in higher prices. Both parties may then be satisfied by the buyer having his bank pledge itself to accept and pay the seller's draft, provided all the terms of the transaction have been complied with. The buyer then makes arrangements with his bank to take care of his obligation on the due date. He thus secures a loan at a much lower rate than could be obtained otherwise." Bank acceptances may also be used for borrowing purposes in the general discount market. Thus, merchants or producers may store their products with a properly organized warehouse, deposit the warehouse receipt as security, and obtain the accept

FITZGERALD, J. A., "Making Use of a Bank," pp. 218-219.

ance of a reliable bank. When thus accepted, a drawer can then sell his bills in the open market at the lowest rate of interest (see Figs. 6 and 7).

Travelers' Checks.-These checks can be obtained at practically every bank. They are issued in four denominations ($10, $20, $50, and $100) and can be made up in any amount in book form, from which they may be torn as occasion requires. Travelers' checks are used for long-distance travel among strangers where the carrying of much gold or currency is unsafe. By the use of these instruments funds may be easily secured. All that is needed is to establish one's identity by signing one's name, which is then compared with the signature appearing on each check.

FIG. 7.-Bank acceptance covering an export transaction.

Travelers' Letters of Credit.-A traveler can also secure from his bank a letter of credit. A traveler's letter of credit may be defined as a request from a banker or firm to other banks or firms, with whom the former has credit relations or deposits, to advance money not exceeding the face value of the letter to the person named therein. It is the bank's agreement to accept the drafts of the traveler up to the face value of the letter, which is to be returned with the last draft. Its chief function is to facilitate the transfer of funds to foreign countries for the convenience of travelers. The purchaser of such an instrument has the right to draw at different times from different banks or firms up to the amount stated in the letter (see Fig. 8).

Each time a sum of money is drawn by the holder of the

letter, the instrument is presented to the official making payment. He then notes on the reverse side of the letter the date when paid, by whom paid, and the amount drawn. The holder

is also required to sign his name on a separate piece of paper so that his signature may be identified, by comparison, with that appearing on the letter of indication which is attached to the

accompanying Book of Indication, in which are listed the names of all correspondents of the issuing bank (see Fig. 9).

Most travelers' letters of credit are made payable in London. If the traveler is in Berlin and finds himself in need of funds, he goes to a bank specified in the letter and identifies himself.

FIG. 9.-Letter of indication which must be presented each time a draft is drawn under the traveler's letter of credit.

The bank ascertains the price of pounds sterling at the time, and draws a draft for enough pounds to equal the number of marks desired by the holder of the letter. This draft is then forwarded to London by the Berlin bank, and proper notation is made on the reverse side of the letter of credit, which is then returned to the traveler, together with the desired amount of money. The London The London bank then charges the issuing bank's