Foreign bills of exchange are used, in order to avoid the necessity of transmitting actual money from one country to another.

A merchant, for instance, in Nova Scotia, is owing L100 to a manufacturer in Glasgow: he seeks out some one who is a creditor to that amount to some person in Britain; we shall say he finds a captain in the army who wishes to draw L100 from his agent in London.

To this captain the Nova Scotia merchant pays L100, and gets his order or bill on the London agent, which bill he sends to the manufacturer in Glasgow, and the manufacturer transmits the bill to London for payment; any banker, indeed, will give him the money for it, deducting a small commission.

Thus two debts are liquidated, without the transmission of a farthing in money.

The demand for bills in foreign countries to send to Great Britain, has the effect of raising them to a premium, which is called the rate of exchange, and is a burden which falls on the purchaser of the bill.