The Project Gutenberg EBook of Up To Date Business, by Various This eBook is for the use of anyone anywhere at no cost and with almost no restrictions whatsoever. You may copy it, give it away or re-use it under the terms of the Project Gutenberg License included with this eBook or online at www.gutenberg.org Title: Up To Date Business Home Study Circle Library Series (Volume II.) Author: Various Editor: Seymour Eaton Release Date: February 6, 2007 [EBook #20531] Language: English Character set encoding: ISO-8859-1 *** START OF THIS PROJECT GUTENBERG EBOOK UP TO DATE BUSINESS *** Produced by Barbara Tozier, Bill Tozier, Jacqueline Jeremy and the Online Distributed Proofreading Team at http://www.pgdp.net UP-TO-DATE BUSINESS HOME STUDY CIRCLE LIBRARY EDITED BY SEYMOUR EATON UP TO DATE BUSINESS INCLUDING LESSONS IN BANKING, EXCHANGE, BUSINESS GEOGRAPHY, FINANCE, TRANSPORTATION AND COMMERCIAL LAW FROM THE CHICAGO RECORD NEW YORK THE DOUBLEDAY & McCLURE CO. 1900 Copyright, 1897, 1898, 1899, by the CHICAGO RECORD COPYRIGHT, 1899, by SEYMOUR EATON COPYRIGHT, 1899, 1900, by VICTOR F. LAWSON CONTENTS I GENERAL BUSINESS INFORMATION Page I. Commercial Terms and Usages 3 II. Commercial Terms and Usages (Continued) 4 III. Bank Cheques 6 IV. Bank Cheques (Continued) 8 V. Bank Cheques (Continued) 12 VI. Bank Drafts 15 VII. Promissory Notes 18 VIII. The Clearing-house System 21 IX. Commercial Drafts 26 X. Foreign Exchange 31 XI. Letters of Credit 37 XII. Joint-stock Companies 41 XIII. Protested Paper 46 XIV. Paper Offered for Discount 49 XV. Corporations 51 XVI. Bonds 54 XVII. Transportation 57 XVIII. Transportation Papers 59 Examination Paper 64 II BUSINESS GEOGRAPHY [v] Trade Features I. The Trade Features of the British Isles 69 II. " " " " France 94 III. " " " " Germany 102 IV. " " " " Spain and Italy 111 V. " " " " Russia 120 VI. " " " " India 129 VII. " " " " China 139 VIII. " " " " Japan 148 IX. " " " " Africa 157 X. " " " " Australia and Australasia 166 XI. " " " " South America 177 XII. " " " " Canada 187 XIII. " " " " The United States 194 Examination Paper 210 III FINANCE, TRADE, AND TRANSPORTATION I. National and State Banks 215 II. Savings Banks and Trust Companies 221 III. Corporations and Stock Companies 225 IV. Borrowing and Loaning Money 228 V. Collaterals and Securities 233 VI. Cheques, Drafts, and Bills of Exchange 240 VII. The Clearing-house System 248 VIII. Commercial Credits and Mercantile Agencies 254 IX. Bonds 263 X. Transportation by Rail 267 XI. Freight Transportation 274 XII. Railroad Rates 281 XIII. Stock and Produce Exchanges 288 XIV. Storage and Warehousing 294 Examination Paper 301 IV COMMERCIAL LAW I. The Different Kinds of Contracts 309 II. The Parties to a Contract 312 III. The Parties to a Contract (Continued) 315 [vi] [vii] IV. The Consideration in Contracts 318 V. The Essentials of a Contract 321 VI. Contracts by Correspondence 326 VII. What Contracts Must Be in Writing 332 VIII. Contracts for the Sale of Merchandise 336 IX. The Warranties of Merchandise 340 X. Common Carriers 344 XI. The Carrying of Passengers 347 XII. On the Keeping of Things 350 XIII. Concerning Agents 353 XIV. The Law Relating to Bank Cheques 358 XV. The Law Relating to Leases 363 XVI. Liability of Employers to Employés 369 XVII. Liability of Employers to Employés 373 Examination Paper 377 V PREPARING COPY FOR THE PRESS AND PROOF-READING I. Preparing Copy 381 II. On the Names and Sizes of Type 382 III. The Terms Used in Printing 384 IV. Marks Used in Proof-reading 387 ILLUSTRATIONS I GENERAL BUSINESS INFORMATION Page A Poorly Drawn Cheque 7 A Carefully Drawn Cheque 8 A Cheque Drawn so as to Insure Payment to Proper Party 9 A Cheque Payable to Order 11 A Blank Indorsement 11 A Cheque Made to Obtain Money for Immediate Use 13 A Certified Cheque 14 [viii] [ix] A Cheque for the Purchase of a Draft 16 A Bank Draft 17 Ordinary Form of Promissory Note 18 A Promissory Note Filled Out in an Engraved Blank 19 A Special Form for a Promissory Note 20 The Advantages of the Clearing-house System 22 The Route of a Cheque 24 Backs of Two Paid Cheques 25 A Sight Draft Developed from Letter 27 A Sight Draft 28 An Accepted Ten-day Sight Draft 28 An Accepted Sight Draft 29 A Time Draft 29 Foreign Exchange 32 A Bill of Exchange (Private) 35 A Bill of Exchange (Banker's) 36 First Page of a Letter of Credit 38 Second Page of a Letter of Credit 40 A Certificate of Stock in a National Bank 42 A Certificate of Stock in a Manufacturing Company 43 A Protest 48 A Private Bond 55 A Shipping Receipt ("Original") 60 A Steamship Bill of Lading 61 A Local Waybill 62 II BUSINESS GEOGRAPHY London the Natural Centre of the World's Trade 72 British Mercantile Marine 74 London Bridge 76 The Coal-fields of England 80 The Manchester Ship Canal 84 The Great Manufacturing Districts of England 88 France Compared in Size with the States of Illinois and Texas 95 Street Scene in Paris, Showing the Bourse 97 Approximate Size of the German Empire 104 North Central Germany, Showing the Ship Canal and the Leading Commercial Centres 109 Spain Compared in Size with California 113 Italy and its Chief Commercial Centres 117 Russia, the British Empire, and the United States Compared 121 Moscow 127 [x] Comparative Sizes of India and the United States 133 China and its Chief Trade Centres 145 Japan's Relation to Eastern Asia 155 The Partition of Africa 159 Australia 171 The Most Prosperous Part of South America 183 Trade Centres of Canada and Trunk Railway Lines 192 Export Trade of United States and Great Britain Compared 198 United States Manufactures and Internal Trade Compared with the Manufactures and Internal Trade of all Other Countries 199 Principal Articles of Domestic Exports of the United States 205 III FINANCE, TRADE, AND TRANSPORTATION The Bank of England 216 Showing Cheque Raised from $7.50 to $70.50 241 A Certified Cheque 244 A Bank Draft 245 A Bill of Exchange 246 Illustrating Cheque Collections 252 A Mercantile Agency Inquiry Form 259 Specimens of Interest Coupons 266 Judge Thomas M. Cooley, First Chairman of the Interstate Commerce Commission 287 The Paris Bourse 289 Interior View of New York Stock Exchange 290 V PREPARING COPY FOR THE PRESS AND PROOF-READING A Printer's Proof 390 A Printer's Corrected Proof 391 GENERAL BUSINESS INFORMATION I. COMMERCIAL TERMS AND USAGES [xi] [3] Decorative T HERE is a distinction between the usage of the names commerce and business. The interchange of products and manufactured articles between countries, or even between different sections of the same country, is usually referred to as commerce. The term business refers more particularly to our dealings at home—that is, in our own town or city. Sometimes this name is used in connection with a particular product, as the coal business or the lumber business, or in connection with a particular class, as the dry-goods business or the grocery business. The name commerce, however, seldom admits of a limited application. In the United States trade is synonymous with business. The word traffic applies more especially to the conveyance than to the exchange of products; thus we refer to railroad traffic or lake traffic. Products, when considered articles of trade, are called merchandise, goods, wares. The term merchandise has the widest meaning, and includes all kinds of movable articles bought or sold. Goods is applied more particularly to the supplies of a merchant. Wares is commonly applied to utensils, as glassware, hardware, etc. Gross commonly means coarse or bulky. In trade it is used with reference to both money and goods. The gross weight of a package includes the weight of the case or wrappings. The larger sum in an account or bill— that is, the sum of money before any allowance or deductions are made—is the gross amount of the bill. The word net is derived from a Latin word meaning neat, clean, unadulterated, and indicates the amount of goods or money after all the deductions have been made. To say that a price is net is to indicate that no further discount will be made. The word firm relates to solidity, establishment, strength, and in a business sense signifies two or more persons united in partnership for the purpose of trading. The word house is very frequently used in the same sense. In mercantile usage house does not mean the building in which the business is conducted, but the men who own the business, including, perhaps, the building, stock, plant, and business reputation. The name concern is often used in a very similar way. The name market expresses a locality for the sale of goods, and in commerce is often used to denote cities or even countries. We say that Boston is a leather market, meaning that a large number of Boston merchants buy and sell leather. In the same sense we call Chicago a grain market, or New Orleans a cotton market. In its more restricted sense the name market signifies a building or place where meat or produce is bought and sold. We say that the market is flooded with a particular article when dealers are carrying more of that article than they can find sale for. There is no market for any product when there is no demand. The money market is tight or close when it is difficult to borrow money from banks and money-lenders. II. COMMERCIAL TERMS AND USAGES (Continued) The natural resources of a country are mainly the mineral commodities and agricultural produce that it yields. The lumber and fish produced in a country are also among its natural resources. The positions and industries of cities are usually fixed by natural conditions, but the most powerful agent is the personal energy of enterprising and persevering men, who, by superior education, or scientific knowledge, or practical foresight, have often been able to found industrial centres in situations which no geographical considerations would suggest or explain. Commission merchants receive and sell goods belonging to others for a compensation called a commission. A selling agent is a person who represents a manufacturing establishment in its dealings with the trade. The factory may be located in a small town, while the selling agent has his office and samples in the heart of a great city. As regards the quantity of goods bought or sold in a single transaction, trade is divided into wholesale and retail. The wholesale dealer sells to other dealers, while the retail dealer sells to the consumer—that is, the person who consumes, or uses, the goods. A jobber is one who buys from importers and manufacturers and sells to retailers. He is constantly in the market for bargains. The names jobber and wholesaler are often used in the same sense, but a jobber sometimes sells to wholesalers. Wholesale has reference to the quantity the dealer sells, and not to the source from which he buys, or the person to whom he sells. The wholesaler, as a rule, deals in staples—that is, goods which are used season after season—though of course there are wholesalers in practically all businesses. Wholesale dealers send out travellers or drummers, who carry samples of the goods. Frequently the traveller starts out with his samples from six months to a year in advance of the time of delivery. It is quite a common thing for the retailer to order from samples merchandise which at the time of placing the order may not even be manufactured. By the price of a commodity is meant its value estimated in money, or the amount of money for which it will exchange. The exchangeable value of commodities depends at any given period partly upon the expense of production and partly upon the relation of supply and demand. Prices are affected by the creation of [4] [5] [6] monopolies, by the opening of new markets, by the obstructing of the ordinary channels of commercial intercourse, and by the anticipation of these and other causes. It is the business of the merchant to acquaint himself with every circumstance affecting the prices of the goods in which he deals. The entire world is the field of the modern merchant. He buys raw and manufactured products wherever he can buy cheapest, and he ships to whatever market pays him the highest price. Our corner grocer or produce- dealer may furnish us with beef from Texas, potatoes from Egypt, celery from Michigan, onions from Jamaica, coffee from Java, oranges from Spain, and a hundred other things from as many different points; and yet, so complete is the interlocking of the world's commercial interests, and so great is the speed of transportation, that he can supply us with these necessaries under existing conditions more easily and readily than if they were all grown on an adjoining farm. III. BANK CHEQUES A cheque is an order for money, drawn by one who has funds in the bank. It is payable on demand. In reality, it is a sight draft on the bank. Banks provide blank cheques for their customers, and it is a very simple matter to fill them out properly. In writing in the amount begin at the extreme left of the line. The illustration given below shows a poorly written cheque and one which could be very easily raised. A fraudulent receiver could, for instance write, "ninety" before the "six" and "9" before the figure "6," and in this way raise the cheque from $6 to $96. If this were done and the cheque cashed, the maker, and not the bank, would become responsible for the loss. You cannot hold other people responsible for your own carelessness. A cheque has been raised from $100 to $190 by writing the words "and ninety" after the words "one hundred." One of the ciphers in the figures was changed to a "9" by adding a tail to it. It is wise to draw a running line, thus ~~~~~~, after the amount in words, thus preventing any additional writing. A poorly drawn cheque. A poorly drawn cheque. The illustration on page 8 shows a cheque carefully and correctly drawn. The signature should be in your usual style, familiar to the paying teller. Sign your name the same way all the time. Have a characteristic signature, as familiar to your friends as is your face. A cheque is a draft or order upon your bank, and it need not necessarily be written in the prescribed form. Such an order written on a sheet of note-paper with a lead-pencil might be in every way a legally good cheque. A carefully drawn cheque. [7] [8] A carefully drawn cheque. Usually cheques should be drawn "to order." The words "Pay to the order of John Brown" mean that the money is to be paid to John Brown, or to any person that he orders it paid to. If a cheque is drawn "Pay to John Brown or Bearer" or simply "Pay to Bearer," any person that is the bearer can collect it. The paying teller may ask the person presenting the cheque to write his name on the back, simply to have it for reference. In writing and signing cheques use good black ink and let the copy dry a little before a blotter is used. The subject of indorsements will be treated in a subsequent lesson. IV. BANK CHEQUES (Continued) The banks of this country make it a rule not to cash a cheque that is drawn payable to order, unless the person presenting the cheque is known at the bank, or unless he satisfies the paying teller that he is really the person to whom the money should be paid. It must be remembered however, that a cheque drawn to order and then indorsed in blank by the payee is really payable to bearer, and if the paying teller is satisfied that the payee's signature is genuine he will not likely hesitate to cash the cheque. In England all cheques apparently properly indorsed are paid without identification. A cheque drawn so as to insure payment to proper party, A cheque drawn so as to insure payment to proper party. In drawing a cheque in favour of a person not likely to be well known in banking circles, write his address or his business after his name on the face of the cheque. For instance, if you should send a cheque to John Brown, St. Louis, it might possibly fall into the hands of the wrong John Brown; but if you write the cheque in favour of "John Brown, 246 West Avenue, St. Louis," it is more than likely that the right person will collect it. If you wish to get a cheque cashed where you are unknown, and it is not convenient for a friend who has an account at the bank to go with you for the purpose of identification, ask him to place his signature on the back of your cheque, and you will not likely have trouble in getting it cashed at the bank where your friend keeps his account. By placing his signature upon the back of the cheque he guarantees the bank against loss. A bank is responsible for the signatures of its depositors, but it cannot be supposed to know the signatures of indorsers. The reliable identifier is in reality the person who is responsible. INDORSING CHEQUES 1. In indorsing cheques note the following points: 2. Write across the back—not lengthwise. 3. If your indorsement is the first, write it about two inches from the top of the back; if it is not the first indorsement, write immediately under the last indorsement. 4. Do not indorse wrong end up; the top of the back is the left end of the face. 5. Write your name as you are accustomed to write it, no matter how it is written on the face. If you are depositing the cheque write or stamp "For Deposit" or "Pay to ______Bank______," as may be the custom, over your signature. This is hardly necessary if you are taking the cheque yourself to the bank. A cheque with a simple or blank indorsement on the back is payable to bearer, and if lost the finder [9] [10] might succeed in collecting it; but if the words "For Deposit" appear over the name the bank officials understand that the cheque is intended to be deposited, and they will not cash it. 6. If you wish to make the cheque payable to some particular person by indorsing, write "Pay to ______(name)______ or order," and under this write your own name as you are accustomed to sign it. 7. Do not carry around indorsed cheques loosely. Such cheques are payable to bearer and may be collected by any one. 8. If you receive a cheque which has been transferred to you by a blank indorsement (name of indorser only), and you wish to hold it a day or two, write over the indorsement the words "Pay to the order of (yourself—writing your own name)." This is allowable legally. The cheque cannot then be collected until you indorse it. Cheque payable to order and a blank indorsement. A cheque payable to order and a blank indorsement. 9. An authorised stamped indorsement is as good as a written one. Whether such indorsements are accepted or not depends upon the regulations of the clearing-house in the particular city in which they are offered for deposit. The written indorsement is considered safer for transmission of out-of-town collections. 10. If you are indorsing for a company, or society, or corporation, write first the name of the company (this may be stamped on) and then your own name, followed by the word "Treas." 11. If you have power of attorney to indorse for some particular person, write his name, followed by your own, followed by the word "Attorney" or "Atty.," as it is usually written. 12. It is sometimes permissible to indorse the payee's name thus, "By ______(your own name)." This may be done by a junior member of a concern when the person authorised to indorse cheques is absent and the cheques are deposited and not cashed. 13. Do not write any unnecessary information on the back of your cheque. A story is told of a woman who received a cheque from her husband, and when cashing it wrote "Your loving wife" above her name on the back. [11] [12] V. BANK CHEQUES (Continued) If you wish to draw money from your own account, the most approved form of cheque is written "Pay to the order of Cash." This differs from a cheque drawn to "Bearer." The paying teller expects to see yourself, or some one well known to him as your representative, when you write "Cash." If you write "Pay to the order of (your own name)" you will be required to indorse your cheque before you can get it cashed. If your note is due at your own bank and you wish to draw a cheque in payment, write "Pay to the order of Bills Payable." If you wish to write a cheque to draw money for wages, write "Pay to the order of Pay-roll." If you wish to write a cheque to pay for a draft which you are buying, write "Pay to the order of N. Y. Draft and Exchange," or whatever the circumstances may call for. A cheque made to obtain money for immediate use. A cheque made to obtain money for immediate use. If you wish to stop the payment of a cheque which you have issued you should notify the bank at once, giving full particulars. Banks have a custom, after paying and charging cheques, of cancelling them by punching or making some cut through their face. These cancelled cheques are returned to the makers at the end of each month. If you have deposited a cheque and it is returned through your bank marked "No Funds," it signifies that the cheque is worthless and that the person upon whose account it was drawn has no funds to meet it. Your bank will charge the amount to your account. The best thing to do in such a case is to hold the cheque as evidence of the debt, and write the person who sent it to you, giving particulars and asking for an explanation. If you wish to use your cheque to pay a note due at some other bank, or in buying real estate, or stocks, or bonds, you may find it necessary to get the cheque certified. This is done by an officer of the bank, who writes or stamps across the face of the cheque the words "Certified" or "Good When Properly Indorsed," and signs his name. (See illustration.) The amount will immediately be deducted from your account, and the bank, by guaranteeing your cheque, becomes responsible for its payment. Banks will usually certify any cheque drawn upon them if the depositor has the amount called for to his credit, no matter who presents the cheque, and this certifying makes it feasible for a man to carry in his pocket any amount of actual cash. If you should get a cheque certified and then not use it, deposit it in your bank, otherwise your account will be short the amount for which the cheque is drawn. In Canada all cheques are presented to the "ledger-keeper" for certification before being presented to the paying teller. A certified cheque. A certified cheque. [13] [14] THE USEFULNESS OF BANKS Banks are absolutely necessary to the success of modern commercial enterprises. They provide a place for the safe-keeping of money and securities, and they make the payment of bills much more convenient than if currency instead of cheques were the more largely used. But the great advantage of a banking institution to a business man is the opportunity it affords him of borrowing money, of securing cash for the carrying on of his business while his own capital is locked up in merchandise or in the hands of his debtors. Another important advantage is to be found in the facilities afforded by banks for the collection of cheques, notes, and drafts. VI. BANK DRAFTS A draft is a formal demand for the payment of money. Your bank cheque is your sight draft on your bank. It is not so stated, but it is so understood. A cheque differs from an ordinary commercial draft, both in its wording and in its purpose. The bank is obliged to pay your cheque if it holds funds of yours sufficient to meet it, while the person upon whom your draft is drawn may or may not honour it at his pleasure. A cheque is used for paying money to a creditor, while a draft is used as a means of collecting money from a debtor. Nearly all large banks keep money on deposit with one or more of the banks located in the great commercial centres. They call these centrally located banks their correspondents. The larger banks have correspondents in New York, Chicago, Boston, and other large cities. As business men keep money on deposit with banks to meet their cheques, so banks keep money on deposit with other banks to meet their drafts. A bank draft is simply the bank's cheque, drawn upon its deposit with some other bank. Banks sell these cheques to their customers, and merchants make large use of them in paying bills in distant cities. These drafts, or cashiers' cheques, as they are sometimes called, pass as cash anywhere within a reasonable distance of the money centre upon which they are drawn. Bankers' drafts on New York would, under ordinary financial conditions, be considered cash anywhere in the United States. A draft on a foreign bank is usually called a bill of exchange. A cheque for the purchase of a draft. A cheque for the purchase of a draft. Cheques have come to be quite generally used for the payment of bills even at long distances. If a business man desires to close an important contract requiring cash in advance he sends a bank draft, if at a distance, or a certified cheque, if in the same city. If he desires simply to pay a debt he sends his own personal cheque. Bank drafts are quite generally used by merchants in the West to pay bills in the East. A draft on New York bought in San Francisco is cash when it reaches New York, while a San Francisco cheque is not cash until it returns and is cashed by the bank upon which it is drawn. In the ordinary course of business cheques are considered cash no matter upon what bank drawn. The bank receiving them on deposit gives the depositor credit at once, even though it may take a week before the value represented by the cheque is in the possession of the bank. [15] [16] [17] A bank draft. A bank draft. All wholesale transactions and a large proportion of retail transactions are completed by the passing of instruments of credit—notes, cheques, drafts, etc.; a part only of the retail trade is conducted by actual currency-bills and "change." Banks handle the bulk of these transferable titles and deal to a very small extent— that is, proportionally—in actual money. The notes, drafts, bills of exchange, and bank cheques are representative of the property passing by title in money from the producers to the consumers. A small proportion—perhaps six or eight per cent.—of these transactions is conducted by the use of actual bank or legal-tender notes. This trade in instruments of credit amounts in the United States to fifty billions of dollars yearly. VII. PROMISSORY NOTES Ordinary form of promissory note. Ordinary form of promissory note. A promissory note is a written promise to pay a specified sum of money. At the time of the note's issue—that is, when signed and delivered—two parties are connected with it, the maker and the payee. The maker is the person who signs or promises to pay the note; the payee is the person to whom or to whose order the note is made payable. Negotiable in a commercial sense means transferable, and a negotiable note is a note which can be transferred from one person to another. A note to be made negotiable must contain the word bearer or the word order—that is, it must be payable either to bearer, or to the order of the payee. A non-negotiable note is payable to a particular person only. A note may be written on any kind of paper, in ink or pencil. It is wise, however, to use ink to prevent changes. All stationers sell blank forms for notes which are easily filled in. The samples of notes which appear in this lesson are selected simply to illustrate to students the fact that there are a great many special forms of notes in common use. The wording differs slightly in different States. The date of a note is a matter of the first importance. Some bankers and business men consider it better to draw notes payable at a certain fixed time, as, "I promise to pay on the 10th of March, 1897." The common custom is to make notes payable a certain number of days or months after date. A note made or issued on Sunday is void. The day of maturity is the day upon which a note becomes legally due. In several of the States a note is not legally due until three days, called days of grace, after the expiration of the time specified in the [18] [19] note. A promissory note filled out on an engraved blank. A promissory note filled out on an engraved blank. The words value received, which usually appear upon notes, are not necessary legally. Thousands of good notes made without any value consideration are handled daily. The promise to pay of a negotiable note must be unconditional. It cannot be made to depend upon any contingency whatever. Notes that are made in settlement of genuine business transactions come under the head of regular, legitimate business paper. An accommodation note is one which is signed, or indorsed, simply as an accommodation, and not in settlement of an account or in payment of an indebtedness. With banks accommodation paper has a deservedly hard reputation. However, there are all grades and shades of accommodation paper, though it represents no actual business transaction between the parties to it, and rests upon no other foundation than that of mutual agreement. No contract is good without a consideration, but this is only true between the original parties to a note. The third party or innocent receiver or holder of a note has a good title, and can recover its value, even though it was originally given without a valuable consideration. An innocent holder of a note which had been originally lost or stolen has a good title to it if he received it for value. A special form for a promissory note. A special form for a promissory note. A note does not draw interest until after maturity, unless the words with interest appear on the face. Notes draw interest after maturity and until paid, at the legal rate. A note should be presented for payment upon the exact day of maturity. Notes made payable at a bank, or at any other place, must be presented for payment at the place named. When no place is specified the note is payable at the maker's place of business or at his residence. In finding the date of maturity it is important to remember that when a note is drawn days after date the actual days must be counted, and when drawn months after date the time is reckoned by months. To discount a note is to sell it at a discount. The rates of discount vary according to the security offered, or the character of the loan, or the state of the money market. For ordinary commercial paper the rates run from four to eight per cent. Notes received and given by commercial houses and discounted by banks are not usually for a longer period than four months. [20] [21] VIII. THE CLEARING-HOUSE SYSTEM In large cities cheques representing millions of dollars are deposited in the banks every day. The separate collection of these would be almost impossible were it not for the clearing-house system. Each large city has its clearing-house. It is an establishment formed by the banks themselves, and for their own convenience. The leading banks of a city connect themselves with the clearing-house of that city, and through other banks with the clearing-houses of other cities, particularly New York. Country banks connect themselves with one or more clearing-houses through city banks, which do their business for them. The New York banks, largely through private bankers, branches of foreign banking houses, connect themselves with London, so that each bank in the world is connected indirectly with every other bank in the world, and in London is the final clearing-house of the world. The advantages of the clearing-house system. The advantages of the clearing-house system. Suppose that the above diagram represents the banks and clearing-house of a city, and also the two business houses of Brown and Smith. Brown keeps his money on deposit in Bank E, and Smith in Bank B. Brown sends (by mail) a cheque to Smith in payment of a bill. Now, Smith can come all the way to Bank E, and, if he is properly identified, can collect the cheque. He does not do this, however, but deposits Brown's cheque in Bank B, the bank where he does his banking business. Now, B cannot send to E to get the money. It could do this, perhaps, if it had only one cheque, but it has taken in hundreds of cheques, some, perhaps, on every bank in town, and on many banks out of town. It would take a hundred messengers to collect them. So, instead of B's going to E, they meet half-way, or at a central point called a clearing-house, and there collect their cheques. B may have $5000 in cheques on E, and E may have $4000 in cheques on B, so that the exchange can be made—that is, the cheques can be paid by E paying the difference of $1000, which is done, not direct, but through the officers of the clearing-house. Now Bank E's messenger carries Brown's cheque back with him and enters it up against Brown's account. This in simple language is the primary idea of the clearing-house. The clearings in New York in one day amount to from one to two hundred millions of dollars. By clearings we mean the value of the cheques which are cleared—that is, which change hands through the clearing-house. Usually once a week (in some cities oftener) the banks of a city make to their clearing-house a report, based on daily balances, of their condition. [22] [23]