The Financing Of Imports Through Dollar Acceptances

The dollar acceptance has established itself formally in the estimation of the American importer and exporter, and has taken a leading position in the world's credit markets. Formerly, the American merchant was required to pay to the London banker a handsome commission for the latter's services in the financing of his foreign trade transactions. Not only was this operation costly in the respective commissions, but it also entailed a good deal of lost time on the part of the American merchant, for if he desired a sterling credit, he found it necessary to establish one in most cases through the medium of an American bank. This entailed a good deal of lost motion as well. Besides, the commission which he was required to pay for this service to compensate the American as well as the English bank on which the credit was drawn, must have been sufficient for both. In other words, the importer by availing himself of sterling credits, was required to pay two commissions. The dollar credit eliminates, for the benefit of the importer, the wastage of time and of money, for he deals with only one bank and is required to pay but one commission, and besides, the time required to consummate the financial arrangement is far less than is the case under sterling credits.

Elimination Of Risk In Exchange

Under the system of foreign credits, the American importer assumes the risk at all times incident to the fluctuation of exchanges. Assume that the importer has made arrangements for the establishment of a credit available to his correspondent at a distant point, and that sometime later, the obligation becomes due and payable at the bank. Suppose the rate of exchange has in the meantime risen to a considerable figure over and above the rate prevailing at the time the credit was arranged for. The importer is therefore required to carry this risk at all times, the result of which in many cases deprives him not only of his profits but of his investment in the transaction as well. In the case of an acceptance in foreign money, the risk of exchange is an all important factor in view of the extreme fluctuations to which the exchanges are sometimes subject. In availing himself of the dollar acceptance method, the American importer knows exactly what his goods cost him and there is no ambiguity as to how much money he owes his bank at the time the acceptance falls due. He can then operate with assurances of success.

Benefit Of The Money Rates Quoted In The New York Market

As a result of the war and the development of the bank acceptance in this country, a discount market for this class of paper has been created with ever increasing demands for the same as an item of investment and as an equalizer of the cash and investment positions of banks. Due to these facts, the money rates quoted in the New York market are on the average likely to be lower than those of other money centers. This also is an important factor to the importer in this country for he then may have the use of the money at an economical expense.