Definition of Domestic exchange


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Domestic exchange -- Also called inland exchange; exchange between two places in the same country; in other words, drafts or orders for money drawn at one place and payable at another place in the same country. Drafts constitute the commonest form of domestic exchange and are purchased for use as such by both banks and individuals. When drawn against persons to whom merchandise has been sold they are known as commercial bills. Domestic exchange is calculated in only one kind of money, whereas foreign exchange is calculated in two kinds. Following is an illustration of the use of domestic exchange : A merchant in Chicago who owes for goods purchased in New York can in discharging his obligation buy of a bank or banker in Chicago a bill of exchange, or in other words, a draft or order for money which is payable in New York by the correspondent (a bank or banker) of the Chicago bank or banker. Again, a shipper in Chicago may forward grain to New York payment for which is due on the arrival of the grain at destination. He draws a draft or order on the consignee (the receiver of the grain in New York). This bill of exchange is attached to the bill of lading (the receipt from the railroad or other carrying company which transports the grain) and is sold to a bank in Chicago. The Chicago bank sends it to its correspondent bank in New York, which collects and places to the credit of the Chicago bank the amount of the draft (bill of exchange). If a bank in Chicago, for instance, has an inadequate balance, or in other words, too small an amount to its credit with its correspondent in New York it may pay a premium, or more than the face value of it, for a draft payable in New York to be used in increasing its balance in New York ; likewise, in such circumstances, if it sells a draft on New York it may charge a premium, or more than its face value, for it. On the other hand, if it has too large a balance in New York and can find more profitable use for its money at home it may buy a draft on New York only at a discount, or less than its face. and it may sell one at little or no premium, and perhaps at a discount. Exchange is in favor of one point and against another point when the necessity lor remittance from the second point to the first point exceeds the necessity for remittance from the first point to the second point. Instead of saying exchange on Chicago or exchange on Boston, etc., it is the common practise to abbreviate the expression to Chicago exchange or Boston exchange, etc.

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Mark McCracken

Author: Mark McCracken is a corporate trainer and author living in Higashi Osaka, Japan. He is the author of thousands of online articles as well as the Business English textbook, "25 Business Skills in English".

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