He frowned. “We’ve already established why the cost of silver in China was so much lower for the conspirators than the price for which they could sell the same silver in European markets. So I assume that as the conspirators acquired the cheap silver in China through their opium operations, at exactly the same time, they sold a similar amount in European markets, making a trade that was both profitable and entirely riskless. Even if the price of silver went up or down, they still made a profit as long as the difference in price prevailed.”
“Yes, exactly!” exclaimed Cordelia. “The miscreants would sell the opium on the fifteenth of every month in China, thus in effectbuyingthe silver at a very low price. As we just discussed, they would pay by issuing a bill of exchange, payable in London in pounds. Meanwhile, on the same day they wouldsellthat same amount of silver in Amsterdam, Hamburg, or Antwerp at the much higher European price, promising future delivery and taking in payment a bill of exchange payable in pounds.”
“But how did they know exactly how the prices compared in Europe and China?” demanded Charlotte.
“A very astute question,” replied Cordelia. “They didn’t know exactly. But there are ships coming into Canton every day. They have the latest information on gold and silver prices, as well as exchange rates. As long as the conspirators could be reasonably certain that some significant price differential remained, they knew that by buying and selling at the same time, they were earning a riskless profit. The calculation of their exact profit would be worked out later.”
“Oh, dear,” murmured Alison. “I fear I don’t follow all this money and bills going around in circles. But I get the sense that the miscreants negotiated an agreement with someone to pay them a large amount of profits in British pounds, which is exactly what they wanted.”
“Precisely,” agreed Cordelia. “The conspirators set up a joint account within the East India Company, one disguised as a legitimate trading account, to keep track of the profits, which they then divided among the conspirators and their partners at the supercargoes, along with the many people they bribed in connection with their scheme. They made the exact calculation of their profits, adjusted for movements in exchange rates through these accounts, and all the conspirators were happy.”
She made a face. “Thievery by double-entry accounting rather than pistols.”
“Interesting,” muttered the earl. “They are unfortunately fiendishly skilled at financing.”
“Indeed. The bills of exchange even minimized the amount of silver which had to be physically transported,” explained Cordelia, now struggling somewhat to control tears. “No need to go into the details here, but it’s much like when I write a cheque on my bank and give it to you to deposit in your bank. The banks don’t ship the actual precious metal for each check back and forth. They merely net out the transactions at regular intervals and move only a small amount of actual currency to balance accounts.”
She paused. “And just the same way, the various agents in the cities receiving or paying the bills of exchange deal regularly with each other and simply net out all the transactions. As a result, very little silver has to be transported in any direction.”
Wrexford grimaced. “Clever. And fascinating that, as the late economist and philosopher Adam Smith wrote, the ‘invisible hand’ of the market is what shapes the nature of all commerce. Even in crime, capital flows to where it can earn the highest return with the least amount of risk.”
“Yes,” agreed Cordelia. “Fiendishly clever.”
The group fell silent, pondering the elaborately sophisticated machinations that Cordelia had just described.
Cordelia fisted her hands together. “It’s taken me some time to piece together all the information I’ve just told you. Please bear with me while I finish explaining how the professor and I were forced to become part of their nefarious scheme.”
Sheffield nodded. “Go on.”
“Jamie had mentioned my mathematical skills and the wonders of the professor’s machine to his friends, including Mather. Apparently, the conspirators got wind of it. Having tricked Jamie into borrowing money for the venture and signing his name to the official company documents, they have threatened to ruin him and make the machination appear to be all his doing unless the professor and I use the Computing Engine—based on principles of arbitrage—to buy and sell silver in different markets to maximum advantage.”
Cordelia drew in a shaky breath. “The best trading strategies depend on the wide range of variables—the price of silver, the interest on money borrowed, the exchange rate for the various currencies involved, the transport costs, to name just a few. The Computing Engine, however, when properly programmed by the mechanical instructions that my mathematical skills allow me to devise, can work the math required in a fraction of the time, and much more accurately than a roomful of accounting clerks.”
“I’ve heard,” the earl mused, “that an understanding of the mathematics of the arbitrage trade has been the subject of considerable study in the past fifty years. Most recently, a Mr. William Tate believes he has worked out a general analysis of the relevant mathematics. Or so my friends at the Exchange tell me.”
“Mr. Tate has done exactly that,” agreed Cordelia. “I’m acquainted with him, and I know that he hopes to publish his writing on the subject soon. But in the meantime, he shared a draft with me. The calculations are laborious and often require prodigious amounts of human labor. Moreover, given all the variables, the most potentially profitable trading arrangements may not be immediately apparent to the human eye. For example, we’ve seen over the past ten years a staggering growth in the ‘forward markets’ as compared with the ‘cash market,’ further complicating the exact calculations . . .”
Her voice trailed off as she realized that the others were reaching the end of their understanding.
And their patience.
“In any event,” she said hurriedly, “now that the professor and I have identified some long-term strategies for profit, I’ve demanded that they let us all withdraw from the wicked scheme. So, Cobra and the ringleaders have promised that if we make enough profit for them in the next arbitrage cycle, they will give Jamie the money he needs to repay the loans taken in his name and will return the corporate documents necessary to allow him to quietly disband Argentum Trading Company. But . . .” Her voice cracked.
“But you don’t believe them,” said Charlotte softly.
“And quite rightly,” growled Wrexford. “This won’t end until we identify the ringleaders and see that they are brought to justice for their crimes.”
Charlotte was of the same opinion. Blackmailers rarely let their victims walk away when there was still money to be squeezed out of them.
“There’s one last thing,” said Cordelia. “In addition to the arbitrage numbers, they’ve also given the professor and me a very complex set of equations to calculate as part of the deal for getting back Jamie’s papers. I don’t know why. I’ve not yet had a chance to examine the required work carefully, so I can’t hazard a guess on what it’s for.”
“I’ve not yet had a look at it, either, but it can be nothing good,” muttered Sudler. “Of that you can be sure.”
Cordelia sucked in a breath. “So, now you know all that we know. And while I have no right to ask for your help . . .”
“Of course m’lady will help,” piped up Raven. As the boy turned to her, Charlotte saw the ripple of mute appeal in his eyes. “Won’t you?”
“That goes without saying,” she replied softly.
