Commercial Bills Research Articles

Australian Monetary Policy: Recent Experience and Some Current Issues

AbstractThis article surveys Australia's recent monetary experience highlighting current problems in interpreting the stance of monetary policy. It then examines changes in the techniques of monetary policy stemming from deregulation and changing views of the authorities. Finally, money supply control, deregulation and broad money growth, and commercial bill financing are analysed so as to help to shed light on the current problems of interpreting monetary condition.

The True Cost of Borrowing Under a Commercial Bill

In this paper we examine the cost structure of loans obtained by means of a commercial bill and develop a method for calculating the true cost of borrowing. This true cost is expressed as a nominal rate of interest per annum which duly takes into account all relevant borrowing costs, that is, all those costs which are the direct consequence of having taken out the loan. The analysis deals with the common case of renewing the loan (‘rolling over the bill’) for a second period, and the general case where (n–1) renewals are effected is also described.

Australia's Official Commercial Bill Market—Development to Date

Australia's Official Commercial Bill Market—Development to Date

State Operations in Gold and Foreign Exchange

This paper discusses the implications of state transactions in gold and foreign exchange. As used here, the term government includes (a) central banks, (b) treasuries, and (c) exchange-stabilization and exchange-control authorities.1 Gold today is held mainly in bars of about ninety-one per cent pure metal worth roughly $I4,000. They are stored either in the government's own vaults or (especially in recent years) on earmark with the Bank of England or the Federal Reserve Bank of New York. Foreign exchange includes bank deposits abroad and holdings of short-term securities, such as the United States treasury bills held by many foreign governments,2 and commercial bills and acceptances, particularly in the United Kingdom. Foreign exchange transactions arise when importers are paying their suppliers in the currency of the latter or when exporters are converting their earnings abroad into their own currency in order to cover their domestic operating expenses. Such transactions also arise because of capital movements among countries. Investors may purchase foreign securities because returns are higher or risks lower than those on domestic securities; or, having made such investments in the past, they may wish to invest their assets at home rather than abroad.

Short and Long Rates of Interest

IT is a little surprising that the abundant literature of the London Money Market should show so little sign of curiosity on what might well be expected to be one of its main interests: the relations between the different prices in the market; in other words, the relations between the different rates of interest on capital supplied for short and long periods. Why do the average levels of short and long rates differ ? How far is it true that these two sets of rates rise and fall together ? And, finally, are changes in long rates appropriate in magnitude to corresponding changes in rates for short loan money? To some of these questions, no doubt, market experience can readily give a general answer. This paper is concerned with the answers given by such figures as are available for the purpose. The development of the London Short Loan Market has been greatly favoured by fortune. Its supply of short loan money could hardly have been so abundant had historical events given our banking system any other than its present form. For the practice of our English banks of offering either cheque-making facilities or a rate of interest in exchange for deposits is peculiarly efficient in attracting the spare funds of the public. At the same time the highly centralized character of the system makes it convenient for bankers to lend a substantial part of these deposits for short periods and by so doing to provide, perhaps, two-thirds of the total supplies available in the London Discount market. On the other hand, innumerable uses for short period supplies of capital arise from our vast merchanting operations. And these uses, expressed in the form of bills, and supplemented by the needs of the Stock Exchange, provide a wide and ample demand for short period funds. This great and even development of the two sides of the London market, in sharp contrast to that of New York, has naturally had its balance disturbed by the finance of war. A great increase in its supplies, together with a decline in the volume of bills to about one-half of a pre-war amount estimated at ?350,000,000, left a deficit in demand which has been filled, and much more than filled, by Treasury bills. It would be interesting to speculate on the level which short loan rates may reach when recovery in our foreign trade expands the volume of commercial bills. But we are concerned here with rates as they have been and as they are. First: