EXCHANGE PROFIT

Hokitika Guardian, 7 March 1932, Page 3

EXCHANGE PROFIT

SYDNEY. PAPER’S ALLEGATIONS

“UNREASONABLE BANK RATE.”

An allegation in the Sydney “Morning Herald” of February 17th, that the banks trading in Australia and New Zealand are making an unreassonably high profit out of the present abnormal exchange position was denied last night by a local bank manager who said that the prices now quoted by each bank were governed entirely by its supply of funds in each country. “Conditions of New Zealand exchange are chaotic,’ begins the “Herald’, f article. ” “The banks sell New-Zealand 7s 6d, but they are very „.<•unwilling, to give the complementary buying rate £AII3 12s 6d. The : quotations for' buying run all the way down to par. The practice is the same in New Zealand, though there; of course, the favoured quotation is reversed. The banks in New Zealand make no difficulty about buying Australian money at 8N.Z.100 for. £All4„7s 6d, but when they sell Australian • money it is at varying rates, according to the bank and the customer, down to par.

PREFERENCE TO CLIENTS. “Trade customers obtain the most favourable treatment. Generally: they are giithff’fcfiufetafitisil/’,premium in pirrency remit 'frotfri-New Zealand. The extent of the difference in 'treatmteirt .rrnay be measuredthe •feply -wfiten- a -New-Zealand- customer —only a small customer—of‘an Australian bank' with branches in New Zealand received from one ol the branches, ■ where he had an account, in answer"’to' his protest' against not being given the premium in Australian pounds, whereas when he desired to have remitted to him money from Australia ; 'to New Zealand he was charged the full premium. The significant statement of the answer which he received to his vigorous protest againsjt simjply receiving a par rate in Australia for his New Zealand money is: ‘We are reserving the benefit of our exchange rates for our well-established clients.’ '

“UNREASONABLE PROFIT.” •hanks have the -'right to charge what prices they desire for the 'Australian -1 or Si New Zealand, or any other money -they 1 acquire. ‘The wisdom of transacting exchange' operations at so'nie.bf“the buying fates now quoted,' while the selling rate is kept so high, may well he doubted. Tne practice leads, to the very pertinent question of the profits of exchange. So long as the profits are kept within the very narrow limits which the elos-. ,est quotation now' current' 'gives—buying £AII3 12s 6d, selling £AII4 cfa? >pjofit. reasonable, . 15s per £AII4/ When ;a hank sells New Zealand money at tlie' rate of £4.114 7s Hd, and buys it at-, the rg.te o.f .£AIOO, . even though the amounts be small,, the profit'is, to.; v.piit-. it. mildly, unreasonable.-. “The weakness in the New Zealand. ■ rates':; shas- -arisen- - owing to- doubts -whether the ; present higher value of rin-vFeljition to the £A. will be maintained. It "is known that negotiations are proceeding in New- Zealand. Should those negotiations result' in exchange being brought con- ' siderably nearer to par, banks which have brought New 1 Zealand money at the rate of £AII4 7s 6d, would suffeheavy loss.”

BALANCING THE FUNDS

Tlie bank manager who was asked to comment on this article pointed out that if an Australian bank doing business in New Zealand 1 was short of funds in Australia, it naturally put up the price of Australian money in New Zealand. Conversely, if the bank held a . surplus in Australia and was short of. funds in New Zealand, it would not encourage the purchase of drafts ,1.11 New Zealand. '‘‘Unfortunately, there is no uniformity of purchase at present,” he added. ‘‘ln normal conditions the same qito.is changed by all the banks, but the present abnormal state of affairs has led, each bank to adopt its own prices.

“It is not correct to say that the banks are making an unreasonable profit. They are merely discouraging business which does not suit them by refusing to give a premium. It must lie remembered that jf a bank through doing exchange business allows its funds at either end to run low, it has to • replenish those funds from the other banks at the ruling high rates.”