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Chapter 01 - Functions and Roles of Financial Institutions and Markets in the Global Economy
1-1
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Chapter 1
Functions and Roles of Financial Institutions and Markets
in the Global Economy
Learning Objectives in This Chapter
• You will understand the functions performed and the roles played by the system
of financial institutions and markets in the global economy and in our daily
lives.
• You will discover how important financial institutions and markets, including
the whole financial system, are to increasing our standard of living, generating
new jobs, and building our savings to meet tomorrow’s financial needs.
What’s in This Chapter? Key Topics Outline
• How the System of Financial Institutions and Markets Interfaces with the
Economy
• The Importance of Savings and Investment
• The Nature of Financial Claims in the Financial Markets
• Functions of Financial Institutions and Markets: Savings, Wealth, Liquidity,
Credit, Payments, Risk Protection, and Pursuing Public Policy
• Types of Financial Markets within the Global Financial System
• Factors Tying All Financial Markets Together
• The Dynamic Financial System: Key Emerging Trends
Chapter Outline
1.1. Introduction to the System of Financial Institutions and Markets
1.2. The Global Economy and the System of Financial Institutions and Markets
1.2.1. Flows within the Global Economic System
1.2.2. The Role of Markets in the Global Economic System
1.2.3. Types of Markets
1.2.4. The Financial Markets and the Financial System: Channel for Savings
and Investment
1.2.4.1. Nature of Savings
1.2.4.2. Nature of Investment
1.3. Economic Functions Performed by the Global System of Financial Institutions
and Markets
1.3.1. Savings Function
1.3.2. Wealth Function
1.3.3. Liquidity Function

1-2
1.3.4. Credit Function
1.3.5. Payments Function
1.3.6. Risk Protection Function
1.3.7. Policy Function

1-3
1.4. Types of Financial Markets within the Global Financial System
1.4.1. The Money Market versus the Capital Market
1.4.2. Divisions of the Money and Capital Markets
1.4.3. Open versus Negotiated Markets
1.4.4. Primary versus Secondary Markets
1.4.5. Spot versus Futures, Forward, and Option Markets
1.5. Factors Tying All Financial Markets Together
1.5.1. Credit, the Common Commodity
1.5.2. Speculation and Arbitrage
1.6. The Dynamic Financial System
1.7. The Plan of This Book
Key Terms Appearing in This Chapter
financial system, 3
market, 4
financial market, 6
savings, 6
investment, 6
wealth, 8
net worth, 8
financial wealth, 8
net financial wealth, 8
liquidity, 9
credit, 9
money market, 12
capital market, 12
open markets, 14
negotiated markets, 14
primary markets, 14
secondary markets, 14
speculators, 16
arbitrage, 16
Questions to Help You Study
1. Why is it important for us to understand how the global system of financial
institutions and markets works?
Answer: The global financial system of institutions and markets is an integral part of
the global economic system. It is the collection of markets, institutions, laws,
regulations, and techniques through which bonds, stocks, and other securities are
traded, interest rates are determined, and financial services are produced and delivered
around the world.
2. What are the principal links between the financial system and the economy?
Why is each important to the other?
Answer: The principal link between the financial system and the economy is the
Financial Markets. The financial markets channel savings to those individuals and
institutions needing more funds for spending than are provided by their current
incomes. The financial markets are the heart of global financial system, attracting and
allocating saving and setting interest rates and prices of financial assets (stocks, bonds,
etc.).

1-4
3. What are the principal functions or roles of the global financial system? How
do financial institutions and markets fulfill those roles or functions?
Answer: The principal function or role of the global financial system is to move scarce
loanable funds from those who save to those who borrow to buy goods and services and
to make investments in new equipment and facilities so that the global economy can
grow and increase the standard of living enjoyed by its citizens. Those who supply
funds to the financial market receive promises packaged in the form of financial claims
(future dividends, interest, etc.) and financial services (stocks, bonds, deposits, and
insurance policies) in return for the loan of their money.
4. What exactly is saving? Investment? Are these terms often misused by people on
the street? Why do you think this happens?
Answer: Saving: For households, savings are what is left from current income after
current consumption expenditures and tax payments are made. For the business sector,
savings include current earnings retained inside business firms after payment of taxes,
stockholder dividends , and other cash expenses. For government, savings arise when
there is a surplus of current revenues over current expenditures in a government’s
budget.
Investment: Investment generally refers to the acquisition of capital goods, such as
buildings and equipment, and the purchase of inventories of raw materials and goods to
sell. For households, investment is the purchase of a home. For business firms,
investment is the expenditures on capital goods (buildings, equipment and other fixed
assets) and inventories (raw materials and goods for sale). For government, investment
is the expenditures to build and maintain public facilities (buildings, monuments,
highways, etc.).
The terms may be misused since their definitions depend on the type of unit in the
economy that is doing the saving or investment.
5. How and why are savings and investment important determinants of economic
growth? Do they impact our standard of living? How?
Answer: The role of the financial system in channeling savings into investment is
absolutely essential to the growth of the economy. For example, if households set aside
savings and those funds are not returned to the spending stream through investment by
businesses and governments, future income payments will decline, leading, in turn to
reduced consumption spending. Then, the public's standard of living will fall. On the
other hand, if the households save and these savings are channeled into investment, the
economy's productive capacity will increase. In turn future income payments will rise,
making possible increased consumption spending and a higher standard of living.

1-5
6. What seven vital functions does the financial system of money and capital
markets perform?
Answer: Savings Function: Bonds, stocks, and other financial claims produced and
sold in financial markets by financial institutions provide a profitable, relatively low-
risk outlet for the public’s saving which flow through the financial markets into
investment. Wealth Function: A stock of assets (the financial instruments) sold by
financial institutions in financial markets provide an excellent way to store of wealth.
Liquidity Function: Financial markets provide liquidity (immediately spendable cash)
for savers who hold financial instruments but are in need of money. Credit Function:
Global financial markets furnish credit to finance consumption and investment
spending. Payments Function: The global system of financial institutions and markets
provides a mechanism for making payments for goods and services. Risk Protection
Function: The financial institutions and markets around the world offer businesses,
consumers, and government protection against life, health, property, and income risks.
Policy Function: The financial markets are a channel through which governments may
attempt to stabilize the economy and avoid inflation.
7. Why is each function of the financial system important to households,
businesses, and governments? What kinds of lives would we be living today if there
were no financial system or no financial markets?
Answer: Each function of financial system will create a need for the money and capital
markets through the flow of funds and the flow of financial services, income, and
financial claims. Without savings, wealth and liquidity, our future consumption may be
limited. It will also be disastrous if our source of income is disrupted. Without credit,
our consumption and investment spending will be limited. Without the payments
function, we will not be able to buy goods and services. Without risk protection, we
will be exposed to life, health, property, and income risks. Without the policy function,
the economy may fluctuate freely beyond control.
8. What exactly do we mean by the term wealth? How does it differ from net worth?
Why is it important?
Answer: Wealth is the sum of the values of all assets we hold at any point in time. The
increase (or decrease) in the total wealth we own in the current time period equals to
our current savings plus the value of all previously accumulated wealth multiplied by
average rate of return on all previously accumulated wealth. While the measure of an
individual’s wealth is important measure of their financial position, a more accurate
measure is that of net worth. Net worth is the difference between an individual’s assets
and their liabilities. It is important because wealth holdings represent stored purchasing
power that will be used as income in future periods to finance purchases of goods and
services and to increase the society's standard of living.
9. What is net financial wealth? What does it reveal about each of us?
Answer: Net financial wealth equals to financial assets - total debt. Net financial wealth
indicates our net value, i.e., the residual value of all our assets after fulfilling all our
financial obligations.

1-6
10. Can you explain what factors determine the current volume of financial wealth
and net financial wealth each of us has?
Answer: The volume of financial wealth is thus dependent on current savings (which
is in turn dependent on current income - current expenditures) and the size of previously
accumulated wealth. The volume of net financial wealth is thus dependent on the
current volume of financial wealth and the total debt. The average rate of return is one
of the factors in the volume of financial wealth. Furthermore, different units in the
economy have different wealth and net wealth due to their different inheritances of
wealth, capabilities of creating and retaining wealth, luck, foresight, debt preferences,
opportunities, etc.
11. Can you distinguish between the following institutions?
Money market versus capital market
Open market versus negotiated market
Primary market versus secondary market
Spot market versus forward or futures market
Answer: The money market is for short-term (one year or less) loans, while the capital
market finances long-term investments by businesses, governments, and households. In
an open market, financial instruments are sold to the highest bidder, and they can be
traded as often as is desirable before they mature. In a negotiated market, the
instruments are sold to one or a few buyers under private contract. The primary market
is for the trading of new securities (often used for new investment in buildings,
equipment, and inventories), while the secondary market deals in securities previously
issued (provide liquidity to security investors). In the spot market, assets or financial
services are traded for immediate delivery (usually within two business days). Contracts
calling for the future delivery of financial instruments are traded in the futures or
forward market.
12. If we follow financial institutions and markets around the world each day, it
soon becomes apparent that the interest rates and asset prices in different markets
tend to move together, albeit with small leads and lags. Why do you think this is
so?
Answer: For the common commodity and credit, borrowers can switch from one credit
market to another, seeking the most favorable credit terms wherever they can be found.
The shifting of borrowers among markets helps to weld the parts of the global financial
system together and to bring the credit costs in the different markets into balance with
one another. Also, speculators work to equilibrate asset prices by purchasing assets that
they believe are under priced and by selling those that they believe are overpriced.
Similarly, arbitrageurs purchase underpriced assets in one market in order to sell them
in a market which overvalues them.

1-7
13. What are some of the forces that appear to tie all financial institutions and
markets together and often result in common movements in prices and interest
rates across the whole financial system?
Answer: Credit, the common commodity, can help the borrowers shift between markets
and weld the parts of the financial system together, thus bringing the credit costs in the
different markets into balance with one another. The speculators are continually on the
lookout for opportunities to profit from their forecasts of future market development.
The arbitrageurs help to maintain consistent prices betweens markets aiding other
buyers in finding the best prices with minimal effort.
14. What is meant by the dynamic financial system? What trends appear to be
reshaping the financial system of financial institutions and markets?
Answer: The global financial system is rapidly changing into a new financial system,
powered by innovation as new financial services and instruments continually appear o
attract customers. Major trends are under way to convert smaller national financial
systems into an integrated global system, at work 24 hours a day to attract savings,
extend credit, and fulfill other vital roles. Many countries have begun to harmonize their
regulations so that financial service firms operate under similar rules no matter where
they are located.
Problems and Issues
1. Identify which of the following statements is correct and which is false. If the
statement is false, identify the error and correct the statement.
a. The change in a household’s wealth over a quarter is its income minus
its expenses plus interest earned on its wealth held at the beginning of the period.
ANSWER: False – household’s wealth must also take into account the value of the
individuals asset holdings as well as their liabilities.
b. The market value of a household’s home is equal to the equity that the
household has in the home and is therefore part of the household’s net worth.
ANSWER: False – Market value of a home is not equal to the equity that the
household has in the home. Market value of the home is the going price for such a
home in current time, while equity is the new sales price minus the debt outstanding
on the home.
c. The saving and wealth functions performed by the financial markets
enable households to increase current consumption at the expense of future
consumption.
ANSWER: True

1-8
2. Which of the following economic functions that financial markets perform
would be best represented by the following properties of U.S. Treasury bills:
(i) the fact that they retain their value over time and (ii) their ability to be
sold on short notice at their true market value?
a. Liquidity and risk protection
b. Wealth and liquidity
c. Policy and wealth
d. Risk protection and policy
Answer: b
3. John Jacobs looks over his balance sheet from the beginning of the month. He
observes that his assets include: (i) a market value of $120,000 for his home;
(ii) $25,000 in corporate stock; (iii) a Treasury bill with a face value of $1,000
to be received at the end of the month, for which the current market value was
$983; (iv) a bank deposit account of $6,000; and (vi) some miscellaneous items
that he values at $35,000. His only outstanding liability is the mortgage on his
house, which has a balance totaling $40,000. It is now the end of the month
and he just received his $6,000 salary, along with the income from the maturing
T-bill and interest on his bank deposits, which were paying an annualized
interest rate of 2 percent (2/12 percent per month). His mortgage payment was
$1,500, of which $500 would go toward the principal. His other expenses for
the month came to $4,000. He had planned to make an additional house
payment for the month, all of which would go to paying down the principal on
the loan. However, his daughter is in college and wants to go to the Bahamas
for spring break. The expense of her trip would be an additional $1,800.
a. Would he be able to make the additional house payment and fund his
daughter’s trip without reducing his account balance in the bank deposit
account?
ANSWER: His total monthly income, including the bond and interest payments
equal $1,000 + $6,000 + $10 = $7,010.
His total expenses this month if he chooses to fund his daughter’s trip and make
the additional payment on the house is $1,500 + $4,000 +$1,500 + $1,800 =
$8,800.
Therefore he would have to draw down his savings account by $7,010-$8,800
= $1,790.
b. What would his net worth be if he funded his daughter’s trip and made the
additional mortgage payment?
ANSWER: His total assets would consist of a home valued at $120,000,
$25,000 in corporate stock, a bank account of $4,210, and miscellaneous items
totaling $35,000. This brings his total assets to $184,210.

1-9
His only liability is the outstanding balance on his mortgage. His made two
payments of $1,500 on his mortgage this month. One of the payments included
a $500 payment on the principal of the loan. The other payment was a principal
only payment. Thus the new outstanding balance of his mortgage is $40,000 -
$500 - $1,500 = $38,000.
So his net worth is given by his total assets less his total liabilities, or $184,210
- $38,000 = $146,210.
c. What would his net worth be if he did not fund his daughter’s trip and
made the additional mortgage payment?
ANSWER: If he did not fund his daughter’s trip, but he did make the extra
payment, then his monthly expenses would be $1,500 + $4,000 +$1,500 =
$7,000. His monthly income, including the maturing bond and interest
payments, would still be $7,010. This means that he would be able to increase
his deposit account by $7,010 - $7,000 = $10 this month.
Given this, his assets would be a home valued at $120,000, $25,000 in corporate
stock, a bank account of $6,010, and miscellaneous items totaling $35,000. This
brings his total assets to $186,010.
Since he still made the extra payment, his total liabilities remain the same as in
part b. So his net worth would be $186,010 - $38,000 = $148,010
d. Would his net worth change if he decided to fund the trip, but did not make
the additional mortgage payment? Explain.
ANSWER: If he funded his daughter’s trip, but did not make the extra payment,
his monthly expenses would be $1,500 + $4,000 + $1,800 = $7,300. His income
would still be $7,010. This means that he would need to draw on his savings by
$7,010 - $7,300 = $290.
Given this, his total assets would be $120,000 + $25,000 + $5,710 + $35,000 =
$185,710. Since he did not make the extra mortgage payment, his liability is
only reduced by the $500 principal payment of the original mortgage payment.
So his total liabilities are given by $39,500.
This means that his net worth is $185,710 - $39,500 = $146,210.
Coming into the month his net worth was given by
$120,000 + $25,000 + $6,000 + $1,000 + $35,000 - $40,000 = $147,000
So his net worth fell by $147,000 - $146,210 = $790.
This happened because the $1,000 matured and was spent, reducing his assets,
while at the same time his liabilities was reduced by $500 from the principal
payment on his mortgage. Together this results in a $500 reduction in net worth.
The other $290 in net worth reduction comes from the drawing down of his bank
account to cover current expenses.
So in summary, the principal payment boosted his net worth by reducing his
liabilities by $500, but the spending of the bond and the drawing down of his

1-10
deposit account for current consumption reduced his assets by $1,290.
Together, the net effect is a reduction of $790 in his net worth.
4. George Wintle purchased a new home valued at $200,000. He paid a 20 percent
initial down payment. He looked at his balance sheet to determine what his
cash flow would be for the month. His new mortgage payment was $1,200, of
which only $100 would go toward the principal in the first month. He had a
bank deposit account of $3,500, which he had set aside for a shot vacation. He
also owned $3,000 in corporate stock. His income for the month was $5,000,
but he anticipates receiving a sales bonus of $1,500. He estimated his usual
monthly expenses, other than his mortgage, to be $3,500.
a. If his estimates are all accurate, would he have any additional income left
over at the end of the month that he could add to the money he had set aside
for his upcoming vacation?
ANSWER: If his estimates are correct, he will receive $5,000+$1,500 = $6,500
in income this month and will have $1,200+$3,500=$4,700. This means he will
have $6,500-$4,700=$1,800 left over that he could add to his vacation account
b. If he failed to receive the sales bonus, would he have to sell stock to keep
from drawing down his bank deposit account and having to curtail his
vacation?
ANSWER: If he fails to receive his sales bonus, he will still earn $5,000. In
this case he will have $5,000-$4,700 = $300 left over to put toward his vacation
5. Megan Morgan recently graduated from college and was just hired at a large
retail firm for $36,000 per year. She estimates her personal belongings to be
worth $7,800. She has school loans of $10,000 that will require her to make
monthly payments of $125 for the next 10 years. She rents an apartment for
$550 per month and estimates that she will have monthly expenses for utilities,
phone, cable, and so forth of $150. She needs a car and has a small noninterest-
bearing bank account of $2,000. She could either buy a used car for $1,600 or
take out a loan for $10,000 for a new compact. The new loan would require a
down payment of $2,000 and five years of monthly payments of $350. Her
parents are willing to give her $1,000 for graduation, which she could apply to
the purchase of a car. Megan estimates that $1,600 per month in discretionary
income would be comfortable for her to live on.
a. What was her net worth when she graduated?
ANSWER: Her total assets were given by here total belongings valued at
$7,800 plus her noninterest-bearing account of $2,000 and plus the $1,000
graduation gift from her parents (assuming that they gave this to her prior to our
accounting). This means her assets total to $10,800.
Here only liability is her $10,000 in student loans, so her net worth is $800.

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b. How much discretionary income would she have each month if she bought
the new car? Would it be feasible for her to save $250 per month and make
all her payments?
ANSWER: Assuming she lives in a world without income tax, her monthly
salary would be $3,000. If she bought the new car, she could use $1,000 of her
bank account balance along with the $1,000 her parents gave her to cover the
down payment.
Her monthly expenses would equal $120 + $550 + $150 + $350 + $1600 =
$2,770. Again, her monthly income, assuming no income tax, is $3,000. This
means she would have $3,000 - $2,770 = $230 left over every month. So she
would not be able to save $250 a month.
c. What would her discretionary income be after the first month if she bought
the used car? Could she now save that $250 per month?
ANSWER: If she bought the used car, here expenses would fall by the amount
of the new car payment to $2,420. Her leftover monthly income would now be
$3,000 - $2,420 = $580.
6. Classify the market in which each of the following financial transactions takes
place as: (i) money versus capital, (ii) primary versus secondary, (iii) open
versus negotiated, or (iv) spot versus futures or forward.
a. A contract to receive wheat three months from today
ANSWER: (iv) spot versus futures or forward
b. The purchase of a share of IBM on the New York Stock Exchange
ANSWER: (iii) open versus negotiated
c. A six-month CD purchased from your bank
ANSWER: (i) money versus capital
d. A newly issued three-month Treasury bill purchased at the government’s
weekly auction
ANSWER (ii) primary versus secondary
e. You open a bank savings account
ANSWER (iii) open versus negotiated
f. You write a check to purchase for cash
ANSWER (i) money versus capital

1-12
7. At the end of the calendar year, a firm has total financial assets amounting to
$4.32 billion, while its total liabilities are $3.58 billion. What is the firm’s net
financial wealth? If the firm saved $50 million over the previous year,
representing the amount by which its financial assets rose relative to its
liabilities, and it had begun the year with 3.72 billion in total financial assets,
how much did it earn on its previously accumulated assets?
ANSWER: The firm’s net financial wealth is given by $4.32 billion - $3.58 billion
=$ 0.74 billion
8. One definition of pure arbitrage is to combine a series of investments with a
series of debts such that the net dollar investment is zero, no risk is taken, and
a profit is made. How does this differ from pure speculation in the financial
markets? Do you think that arbitrage opportunities can really exist? If so, do
you think the opportunities for pure arbitrage would be long-lived? Please
explain.
ANSWER: Pure speculation in the financial market gambles that security prices
or interest rates will move in a direction that will result in quick gains due to the
speculator’s ability to outguess the market’s collective judgment. Thus, speculation
carries risk, and is in contrast with the notion of pure arbitrage presented above.
Yes, arbitrage opportunities can really exist, but they would not be long-lived.
Arbitrageurs will drive down the price of the asset in the market where it is
relatively high, and up in the market where the price is relatively low, until the
security price is the same in both markets. In the future, the new financial services
and instruments will covert smaller national financial system into an integrated
global system. It is difficult for arbitrageurs move from one market to another,
because the financial market will have just only one global financial market.
Web-Based Problems – DATA SERIES MAY BE DIFFERENT
1. Your text defines the wealth of a business firm as the sum of all its assets. To
determine its net wealth (or total equity) you have to subtract the firm's
liabilities from its assets. Net wealth is the value of the firm and should be
reflected in its market capitalization (or stock price times the number of shares
outstanding). Firms in different industries will require different amounts of
wealth to create the same market value (or market capitalization). In this
problem you are asked to compare the wealth (total assets), net wealth (assets
less liabilities), and market capitalization of a large firm in each of the
following industries: Financial Services (Citigroup, ticker symbol C);
Manufacturing (Caterpillar, CAT); and High Tech (Microsoft, MSFT). Using
the financial resources of worldwide web key in each firm's ticker symbol and
find its most recent balance sheet and its market capitalization under. Are you
surprised by how different these firms are in

1-13
terms of the dollar value of assets required to create one dollar of market value?
Answer: You can use the website http://finance.yahoo.com. These are the financial
data on December 2006:
For Citigroup, C: The Total Asset 1,884,318 million dollars
The Total Liabilities 1,764,535 million dollars
Net Wealth 119,783 million dollars
The Market Capitalization 265,430 million dollars
$1 of market value equal $7.1 of value of assets
For Caterpillar, CAT: The Total Asset 50,879 million dollars
The Total Liabilities 44,020 million dollars
For Microsoft, MSFT: The Total Asset 69,597 million dollars
The Total Liabilities 29,493 million dollars
2. A large share of household wealth is held in the form of corporate stock. How
much wealth does the entire stock market represent? To find an approximate
answer, go to the web site for Wilshire Associates at www.wilshire.com and
click Indexes from the menu. Locate the information that explains how the
Wilshire 5000 index is constructed. This index is weighted by the market
capitalization of the firms included in it, such that if you add the right amount
of zeros to the index, you obtain the total value of all the firms represented in
the index. Why is this number a good approximation to the entire U.S. stock
market? Now obtain a chart for the index. How much stock market wealth has
been created or destroyed over the past 12 months? Determine how much stock
market wealth was created or lost per person in the United States over this
period. (Hint: You can find the U.S. population at
http://www.census.gov/main/www/popclock.html). Compare this with the
average after-tax annual income per person in the U.S. Use the disposable
personal income figure that can be found under “Selected NIPA Tables: Table
2.1” at www.bea/gov.doc/bea/dn/nipaweb/index.asp to make the comparison.
Answer: As of June 6, 2007, the total wealth that the entire stock market represents is
15,291.15 billion (from http://www.wilshire.com/quote.html?symbol=dwc). The Dow
Jones Wilshire 5000 base is its December 31, 1980 capitalization of $1,404.596 billion.
The index is an excellent approximation of total value of the U.S. equity market because
it measures the performance of all U.S. headquartered equity securities with readily
available price data.
The following is a chart of the index over a year (from 6/22/06 to 6/21/07):

1-14

1-15
.
Since the difference in the index is approximately 2,800 (=15,300-12,500), we
found the stock market wealth creation to be $2,800 billions for the period between
June 22, 2006 and June 21, 2007.
During this period of time, the U.S. population is approximately 302,152,705
(from http://www.census.gov/main/www/popclock.html). Therefore, $5,060.74 worth
of stock market wealth was created per person in the United States over this period.
During the first quarter of 2007, the disposable personal income is roughly at
$9,898.0 billion, or $32,758.2 per person
(from http://www.bea.gov/bea/dn/nipaweb/TableView.asp#Mid).
3. One of the world's most important financial markets that we will study
throughout this book is the market for U.S. Treasury securities. It is important
because it is one of the few default-free, highly liquid debt instruments
available anywhere in the financial marketplace. To determine the size of this
market go to the Treasury Department’s website at www.treasurydirect.gov
and find the Monthly Statement of the Public Debt (MSPD). How much debt
does the U.S. government owe per person in the United States? (See the
previous problem on how to find the U.S. population figure.) How much of this
debt is held by the public and how much by government agencies? Only a
portion of this debt - termed “marketable” - is traded daily in the system of
financial markets and institutions. The remainder is held by the buyer until it
matures. How much of this public debt is “marketable”?
Answer: http://www.treasurydirect.gov/govt/reports/pd/account/2007/2007_may.pdf
As of May 31, 2007, the amount of debt outstanding held by the public (Non-
governmental) is $4,977,832 millions. When we divide the amount of debt outstanding
by the size of the U.S. population, we obtain the debt that the U.S. government owes
per person in the United States - $16,475. The amount of debt held by the public (Intra
& Non-governmental) is $9,142,527 million, while the amount of debt held by
government agencies is $4,164,695 millions. Of the total amount of $9,142,527
millions of public debt outstanding, $4,977,832 millions, or approximately 54.45 %, of
it is marketable.

Exploring the Variety of Random
Documents with Different Content

Chapter Nine.
Afternoon Meetings.
When the door was thrown open, and the butler’s sonorous
tones announcing Mrs and Miss Derwent made the
occupants of the room turn round, and the short, stout
figure of their hostess came waddling towards all illusion
was dispelled, and with a little sigh Blanche’s mother came
back to the very different present.
Lady Harriot, whose manners, as I have indicated, were not
exactly “grande dame,” looked, and honestly was, a little
perplexed.
“How de do?” she said, with as much civility as she was in
the habit of showing to any but her immediate cronies, and
turning to Blanche, “How de do?”
Blanche happened at the moment to be standing in the full
light, and as she looked down in calm response to the little
woman’s greeting, even obtuse Lady Harriot was struck by
her incontestable beauty.
“She stood there like a picture,” said one of the others
present, when describing the momentary scene, and though
the words were childish, they expressed the feeling.
Nevertheless, “the picture” was the first to take in the whole
situation.
“Mamma,” she said quietly, “I scarcely think Lady Harriot
Dunstan recognises us.”

“Oh yes, I do; at least I—I’m sure I’ve seen you before,”
began Lady Harriot, in a nearer approach to flutter than was
usual with her. For, after all, she was “a lady born,” as the
poor folk express it, and conscious of the obligations of a
hostess. “I’m sure I—”
“You were so good as to come to see us when we were
staying temporarily at Blissmore,” said Mrs Derwent clearly.
“I believe you did so at Mrs Lilford’s request. And I should
apologise for not having returned your call sooner, but till
quite lately we have been in the agonies of furnishing and
moving into our house.”
A light broke over Lady Harriot’s face, but with the
illumination her slight diffidence disappeared. She relapsed
into her stolid, self-satisfied self, and the change was not an
improvement.
“Oh yes, I thought I’d seen you before,” she said. “I’ve been
away, but you needn’t have minded. I told the housekeeper
after I saw you that you might be coming over to see the—”

“Aunt Harriot,” said a masculine voice, suddenly breaking in
at this juncture, “excuse me, but is there any reason why
your friends and you should be standing all this time? If you
specially want to remain in that part of the room, may I not
at least bring some chairs forward?”

And then Blanche, lifting her eyes, saw that a man, a very
young man he seemed to her at first sight, was standing
not many paces off, behind Lady Harriot, slightly hidden by
some intervening furniture or upholstery.
He came forward as he spoke, thus entirely disengaging
himself from a little group—two or three women sitting, and
another older man, who had also, of course, risen from his
chair—at one end of the room, and Blanche’s grave eyes
scanned him with some interest.
It is sometimes—often—well that we are in ignorance of the
unspoken thoughts of those about us, but it is sometimes to
be regretted. A link of sympathy would have been quickly
forged between the girl and the man in this case, had she
known the words which almost forced themselves through
his teeth.
“Those confounded pictures! Is Aunt Harriot an utter fool?”
he said to himself. “To speak to women like these as if they
were her maid’s cousins asking to see the house!”
Lady Harriot turned, and a smile—the first of its kind that
the Derwents had seen—came over her face, mellowing its
plain features with a pleasant glow, for her husbands
nephew, Archie Dunstan, owned perhaps the softest spot in
her heart.
“Certainly,” she said. “Won’t you sit down, Mrs— Oh, I
know,” triumphantly, “Mrs Fleming?” Irritating as it was,
Blanche could not repress a smile; and the smile, like an
electric spark, darted across to Archie Dunstan, and was
reflected in his face. Mrs Derwent flushed slightly; she too
was more than half inclined to laugh.
“No, Lady Harriot,” she said, “I am sorry to contradict you,
but in this instance you do not ‘know.’ My name is Derwent.

It used to be Fenning, in the old days when this house was
almost home to me.”
Mrs Derwent’s intonation, as has before been mentioned,
was remarkably distinct. Her words penetrated to the group
of ladies, and a slight rustle ensued. Then a very tall, thin,
still wonderfully erect figure came forward, both hands
outstretched in welcome.
“Then are you Stasy?” said a tremulous, aged voice—“little
Anastasia Fenning? And can this be your daughter? Dear me
—dear me! Do you remember me? Aunt Grace—Sir Adam’s
cousin? I am pleased to see you again.” And the very old
lady stooped to kiss her long-ago young friend on the
cheek.
“Aunt Grace!” repeated Mrs Derwent; “oh, I am glad to see
you;” and her eyes glistened with more than pleasure. It
seemed the first real welcome to her old home that she had
received.
Lady Harriot stood by, trying to look amiable, but feeling
rather bored.
“How very interesting!” she said. “You’ve met before, then.
Isn’t it nearly tea-time? Do sit down, Aunt Grace; you will
be tired if you stand so long.” But Mrs Selwyn would not sit
down till she had drawn Mrs Derwent to a place beside her.
“Tell me all about yourselves,” she said. “What a lovely
daughter! She must know Hebe.—Hebe, my dear,” and she
turned to look for her.
But “Hebe has gone, Mrs Selwyn,” said one or two voices,
the older of the two men adding: “She is to be with us to-
night, and Norman was to meet her at the lodge, I think.”

“Oh, I am sorry,” said the old lady; and then seeing the
puzzled look on Mrs Derwent’s face, she went on to explain.
“Hebe Shetland is the grand-daughter of one of my earliest
friends. She is an orphan, and lives with the Marths, and
she is a delightful girl Lady Harriot is really my niece on the
other side, for she is no relation to Sir Adam or Amy Lilford,
whom you remember, of course?”
“Yes,” said Blanche’s mother, “but not very well. Dear Sir
Adam, of course, I remember as well as I do my father. But
I began to think something must have happened to him—he
never answered my first letter.” And she went on to tell how
she had written to ask Mrs Lilford about him, and had at
last received a letter from himself. And then she repeated
her expressions of pleasure at meeting Mrs Selwyn.
“I am only here for a few days,” said the old lady. “In fact, I
leave to-morrow. I wish I could have seen more of you, but
I fear it is impossible. I shall be back in the autumn again,
however, if I am still alive. And you are sure to see Adam
when he comes to England.”
“I hope so, indeed,” said Mrs Derwent fervently.
Mrs Selwyn looked at her with kind and understanding eyes.
“You must feel rather strange,” she said, “and perhaps a
little lonely, after your long absence and the complete
change of life. And some English people are so dull, so slow
to take in an idea. She,” with a slight inclination of her head
towards their hostess, “is a good woman in her way, but
intensely dull and narrow. And I don’t think you would care
much for Lady Marth. However, in this world one has to
make the best of one’s neighbours, as well as of a good
many other things. Now tell me all you can about yourself
and your children. But first—Archie, I want to introduce you

to my very old friend’s daughter—Blanche, did you say her
name was, Stasy? How well it suits her!”
“Archie” asked nothing better; and in another moment—for
he had a great gift of chatter—he was talking to Miss
Derwent in his most charming manner, Blanche listening
quietly, with a slight suspicion of condescension in her tone,
which greatly amused the young man. For, after all, he was
not so young as he looked. It set him on his mettle,
however, and made him feel it a positive triumph when he
succeeded in drawing out a smile of amusement, which
lighted up her blue eyes into new beauty.
All this time—though, in reality, no very great stretch of
minutes had passed since the mother and daughter first
entered the room—Stasy was waiting in the fly outside. But,
after a while, the distractions of wondering how her mother
and Blanche were “getting on;” of listening to the
observations which the driver from time to time addressed
in a sleepy voice to his horse, while he lazily tickled its ears
with the end of his whip; or of peering in as far as she could
see, in hopes of a gleam of primroses among the thick
growing shrubs at one side of the house, began to pall upon
her. And the tantalising possibility of the primroses so near
at hand carried the day.
Out of the carriage stepped Miss Stasy.
“If any one should meet me, or if mamma and Blanche
were vexed, I could say I was getting too cold sitting still,
which would be perfectly true,” she said to herself.
There was no getting in among the shrubs and trees from
the immediate front; but the yellow specks were more
clearly visible, and Stasy was not a girl to be easily baffled
when she had got a thing in her head. So she made her way

round by a side path skirting the house at some little
distance, saying to the driver as she passed him, that if the
ladies came out, he was to say she would be back
immediately. The path was somewhat deceptive; it led her
further than she knew, till she suddenly came out on a
broader one bearing away towards another drive some way
off at the back of the house, ending in a small lodge on the
road to Crossburn.
A sort of curiosity led Stasy on.
“I’ll look for primroses as I go back,” she said. “I do like
finding out about places. I wonder if this way would take us
back to Pinnerton across the fields somehow.”
Everything was perfectly still. She stood some little way up
the drive, looking towards the gate, and wishing she dared
venture as far as the road without risk of keeping her
mother and Blanche waiting. The ground was dry and crisp;
last year’s leaves were still lying thickly; and at the other
side of the drive a small fir-wood was attractively tempting.
“I wish our woods at Pinnerton were more firs than all
mixed kinds of trees as they are,” thought Stasy. “I do love
cones so, and the pricks make such a nice crackle when you
walk on them. We used to get tired of the fir-woods at
Arcachon, I remember. I think there is something fresher
about them in England.”
And with a sigh at having to cut short the delights of her
exploration, she was turning to retrace her steps, when a
sound fell on her ears which made her stop short.
It was a woman’s—a girl’s—voice, singing softly, but clearly,
the old ballad of “Robin Adair.” Stasy had never heard it;
but she was of a sensitive and impressionable nature, and
the indescribable charm of the song fell upon her at once.

She stood motionless, till, in another moment, the figure of
the singer, advancing towards her, grew visible.
“I knew it was a girl,” thought Stasy. “I hope she won’t
leave off, I wish I could hide.”
She glanced round her. There was no possibility of such a
thing; and in another moment the new-comer had seen her,
and had left off singing. She stopped short as she came up
to Stasy, and glanced at her inquiringly, with a slight, half-
comical smile.
“Have you lost your way?” she said. “Are you not one of the
Miss Derwents? It seems always my fate to be directing one
or other of you. I met your little brother a day or two ago,
looking as if he had lost his way.”
“No,” said Stasy laughing; “he had only lost us. And I have
not lost my way either, thank you. I am waiting in the fly at
the door for my mother and sister, who are calling on Lady
Harriot Dunstan.”
“Are you?” said Lady Hebe. “I should have said, do you
know, that you were wandering about the woods at the
back of the house, looking for—I don’t know what.”
Stasy laughed again. There was something infectious about
Hebe’s comical tone.
“Primroses,” Stasy replied promptly. “It was primroses that
first lured me out of the fly, I think. But now I’m beginning
to be afraid that mamma and Blanche may be waiting for
me; perhaps I had better go back.”
“They can scarcely be ready yet,” said her new friend. “They
had not come in when I left the drawing-room, and I have
not been long. I only stopped a minute or two to speak to

the dogs. There are some dear dogs here. And tea was just
about coming in. No; you are safe for a few minutes yet.
Would you”—and she hesitated a little—“would you like to
walk to the lodge with me, and a little way down the road I
can show you another way back to the front of the house?”
Stasy was delighted.
“We know who each other is—or are—oh dear, how can I
say it?” she replied as they walked on, “though we have
never been introduced. I am only sorry you were not in the
house there when Blanche came in. She would have liked to
see you so much.”
Lady Hebe’s face flushed a little.
“I wish I had been,” she said. “We must have had the same
feeling. I have wanted to meet your sister. I love her face,
though I have only seen her twice. Perhaps, some day—”
Then she hesitated. “I was rather hurried,” she went on; “I
promised to meet—a friend, who will walk back to
Crossburn with me.”
“Then you are not staying here, at Alderwood?” said Stasy.
“Oh no; I am not staying anywhere, except at what is my
home—East Moddersham, near you. I came over here this
afternoon to see Lady Harriot, or, rather, to see a dear old
lady who is staying here. I sent my ponies on to Crossburn,
as I am dining there, and shall dress there, and drive home
late.”
“How nice!” said Stasy. “How delightful to have your own
ponies and do exactly as you like! I do think English girls
have such nice lives—so much fun and independence. I
should have liked England ever so much better than France

if I had been brought up in it, but as it is—” And Stasy
sighed.
Lady Hebe listened with great interest. “And as it is,” she
repeated, “do you not like it?”
“It is so very dull,” said Stasy lugubriously. “At least, I
shouldn’t find it dull if I might amuse myself in ways
mamma and Blanche would not like.”
Hebe looked rather startled, but Stasy was too engrossed
with her own woes to notice it. “I mean,” she continued,
“that there are some girls at the school I go to for classes,
who are really nice, and there are lots who are very
amusing. But mamma and Blanchie don’t want me to make
friends with them, because, you see—well, they are not
exactly refined.”
“I see,” said Hebe gravely; “and, of course, I think your
mother and sister are quite right. But I can quite
understand that it must be dull—for your sister too, is it
not? She is not much older than you.”
“No,” said Stasy, “but she is different She has always been
so very, very good, you see. She has never been—well,
rather mischievous, and wanting a lot of fun, you know.”
“But she doesn’t look dull,” said Hebe. “She has a very
bright expression sometimes in her eyes. I am sure she has
some fun in her too. I don’t think I could have been so
attracted by her if she had not had fun in her; I am so fond
of it myself,” she added naïvely.
“Oh yes,” said Stasy, “Blanchie is very quick, and very ready
for fun too. But she never grumbles. If things we want don’t
come, she is just content without I’m not like that. Next to
fun, I like grumbling. I couldn’t live without it.”

Hebe smiled, but in her heart she was thinking that there
were some grounds for complaint in the present life of these
pretty and attractive girls. They attracted her curiously;
they were so unlike others—so refined, and yet original; so
perfectly well-bred, and yet so unconventional.
“I wish,” she began, but then she stopped. What she was
going to wish was nothing very definite, and yet it was
better, perhaps, left unexpressed.
“When I am married,” she thought, “I shall have more in my
power in many ways. Norman will understand; he always
does. I fear there would be no use in trying to get Lady
Marth to be kind to them. She would only think it one of my
‘fads.’”
But suddenly Stasy started.
“I am afraid,” she said, “that I am going too far, and
mamma and Blanche may be looking for me. Perhaps I had
better go back now.”
“I don’t think they are likely to have come out yet,” said
Hebe. “But I don’t want to make you uneasy, so perhaps
you had better go back. Good-bye, and—I hope we may
meet again soon.”
She held out her hand, and Stasy, looking at her as she
took it, felt the indescribable charm of the sweet, sunshiny
face.
“Yes,” she thought, “Blanche was right, and Herty was right.
She is lovely.”
“I do hope so,” she replied eagerly, as they separated. Lady
Hebe walked on, thinking. For she thought a good deal.

“Poor little thing,” she said to herself, “it must be very dull.
Yet they have each other, and their mother: the only things
that have ever been wanting to me, they have! But still, the
strangeness and the loneliness, and the not having any
clear place of their own. I wonder they cared to settle in
England; I wonder if there is nothing I can do for them.”
She had reached the lodge gates by this time. A little
further down the road—scarcely more than a lane—was a
stile, on the other side of which lay the field path, which
was the short cut to Crossburn.
And leaning by the stile was a figure, which, at the first
glimpse of Hebe emerging from the Alderwood grounds,
started forward, hastening across with eager gladness;
young, manly, full of life and brightness, he seemed almost
a second Hebe, in masculine form.
“Norman,” she exclaimed, “I haven’t kept you long waiting,
have I?”
“I enjoyed it, dear: not very long. I liked to watch for the
first gleam of you,” he said simply.
And together, in the long rays of the soft evening sunshine,
the two young creatures made their way across the fields.
“What have I done,” said Hebe Shetland to herself—“what
have I done to be so very, very happy?”

Chapter Ten.
At the Vicarage.
The second event which about this time made a little break
in the monotony of the lives at Pinnerton Lodge came out of
the first; for it was the result of much consideration on Lady
Hebe’s part as to what she could do to enliven things for
these two girls, who seemed in a sense to have been
thrown across her path.
She knew that it was useless to appeal to Lady Marth, her
guardian’s wife—a woman who had deliberately narrowed
her life and her sympathies by restricting all her interests to
a small and very exclusive clique, which was the more to be
regretted as she was naturally intelligent and quick of
discernment, without the excuse of poor Lady Harriot
Dunstan’s intense native stupidity. But Hebe managed to
have a good talk with Mrs Selwyn—“Aunt Grace”—the very
morning after the Derwents’ visit to Alderwood, and Aunt
Grace’s own interest in the new-comers being keen, she
was delighted to find Hebe’s enlisted on their behalf.
“I am very sorry I am leaving so immediately,” said Mrs
Selwyn. “I might have been of a little use to them, even
though very little. You see, no one is altogether to blame in
a case like this. Life is short, and there are only so many
hours in each day, and no one can be in two places at once,
or full of conflicting interests at the same time. People who
are half their lives in London, in the thick of the things of
the day, all have too much upon them; it is difficult to get to
know much of those who are quite out of it. And the
Derwents are only half English, too.”

“Then do you think it a mistake for them to have come to
live here?” said Hebe.
“I scarcely know; I can’t judge. They have put themselves
in a difficult position, but there may have been excellent
reasons for their leaving France. If they are very high-
minded, superior women, they may be happy, and make
interests for themselves, and not fret about things they
cannot have. Certainly they—the mother, I should say—is
far too refined to struggle or strain after society.”
“And the elder one is, I do believe, an extraordinarily high-
minded girl,” said Hebe, with a sort of enthusiasm. “Still, it
isn’t fair upon her to be shut out from things; and the little
one, though she is as tall as I”—with a smile—“says frankly
that she finds it woefully dull.”
“And she is only sixteen,” said Mrs Selwyn; “not out, and
with French ideas about young girls. Dear me, it must be
very dull indeed for a girl brought up on those lines to think
it so.”
“She is not the very least French in herself,” said Hebe.
“Just a touch of something out of the common in her tone
and manners, perhaps. But I never met a more thoroughly
English girl in feeling. Yes, indeed. What will she think when
she is grown up?”
“Let us hope that things may improve for them a little,
before then,” said Mrs Selwyn.
Then the two—the old woman and the young—put their
heads together as to what they could do; the result being
that, three or four days after the drive to Alderwood, a note
was brought to Blanche one morning, inviting her and her
sister to afternoon tea at the vicarage.

“I expect one or two young friends living in the
neighbourhood,” wrote Mrs Harrowby, the vicaress, “whom
you may like to meet, and who, on their side, have some
hopes of getting you to help in their little local charities.”
“Humph,” said Stasy, when Blanche read this aloud; “I’ve no
vocation for that sort of thing. I think you had better go
without me.”
“No, I certainly won’t,” said her sister, without much
misgiving. For she saw that, notwithstanding Stasy’s
ungraciousness, she was secretly pleased at even this mild
prospect of a little variety.
Mrs Harrowby’s attentions hitherto—though her good offices
had been bespoken for the Derwents by her brother at
Blissmore—had been less friendly, and more, so to say,
professional. She was a very busy woman, almost too
scrupulous in her determination to be “the same to
everybody,” to show no difference between her bearing
towards the retired tradespeople of Pinnerton Green, and
towards Lady Marth, or other county dignitaries; the result
being, that no attention she ever paid to any one was
considered much of a compliment. But she was well-born
and well-bred, though not specially endowed with tact.
And she was honestly pleased when Lady Hebe appealed to
her to suggest something that might help to enliven the
sisters at Pinnerton Lodge.
“Yes,” she agreed, “I have thought it must be very dull for
them. And yet I could not exactly take it upon me to
suggest their making friends with their neighbours here.
Something in their manner has caused a slight prejudice
against them. None of the families here have called.”

“What neighbours or families are you talking of, Mrs
Harrowby?” said Hebe quickly. She knew the vicar’s wife
very well—knew, too, her peculiar way of looking at social
things, and was not in the very least in awe of her. “Lady
Harriot has called, though—”
“Of course, I was not speaking of neighbours of that kind,”
replied Mrs Harrowby, interrupting her. “I meant the
Wandles at Pinnerton Villa, and the Bracys: I am sure Adela
Bracy is as nice a girl as one could wish to see, and
Florence Wandle is good-nature itself. It is much wiser, as
well as more Christian, to throw aside those ridiculous ideas
of class prejudice, and make the best of the people you live
among.”
“Then why should not all the county people call upon the
Derwents, as well as the Wandles and Bracys?” said Hebe,
with a very innocent air.
Mrs Harrowby coloured a little.
“I don’t know. I don’t see why you should blame them if
they don’t, as you evidently don’t blame the Derwents for
standing off from the Green people. But, the fact of the
matter is, they would have nothing in common with the
Derwents. You know yourself, Hebe, Lady Marth couldn’t
find anything to talk to Mrs Derwent about—now, could
she?”
“She could if she chose,” said Hebe; “but I don’t want to
talk about Josephine”—she always called her guardian’s
wife, who was still a comparatively young woman, by her
first name—“she and I don’t agree on several points, but
she is very good to me. I am not going to urge her calling
on Mrs Derwent, for she wouldn’t, if I did. And I don’t think
the Derwents could possibly like the only side of herself she

would show them. But putting her aside, I certainly don’t
see that the Derwents would have ‘anything in common’
with the Wandles and people like that, if you take that
ground.”
“Then they should have,” said Mrs Harrowby, who was apt
to take refuge in didactic utterances, when she found
herself driven into a corner.
Hebe laughed.
“We have not come to the point at all, though we have been
talking all this time,” she said. “What I was thinking of was
some plan for enlivening the Derwent girls a little. At
present,” and she blushed slightly, “I can do nothing, but
supposing we ask them to help us with our girls’ guild? You
do want to improve it, don’t you? The last meetings have
been so deadly dull. And we were speaking of some new
things—cooking lessons, was it?”
“Yes, we spoke of that, but I think we must wait till one of
the professional cooking ladies comes round. We were
speaking of millinery lessons—the girls do make such vulgar
guys of themselves.”
“That would be nice,” said Hebe. “I daresay Miss Derwent
could help us. And we must have some treats for the girls
when the weather is quite warm enough. Let us have a
meeting, and talk it all over. You can ask Miss Wandle and
Miss Bracy, and I will get Norman’s sister to come, though it
is rather beyond their part of the country. For she might get
leave to invite the guild to Crossburn. Yes, do let us have a
nice afternoon-tea meeting here, and talk it over
comfortably.”
Mrs Harrowby consented. There were not many people who
could refuse Hebe anything she had set her heart upon.

Besides, the vicars wife had no objection to the proposal.
She was kind-hearted, if a trifle dictatorial, and not without
a pleasant strain of humour, as well as a fair amount of
sympathy.
So, on the appointed afternoon, Blanche and Stasy made
their way to the vicarage.
“How pretty you look, Blanchie!” said Stasy, with a gush of
sisterly enthusiasm. “I do think you are getting prettier and
prettier. England suits you, I suppose,” with a little sigh.
Blanche laughed.
“Suits my looks, I suppose you mean?” she said lightly.
Stasy’s admiration amused, but did not much impress her.
Indeed she was not of the nature to be much impressed by
any admiration. She knew she was “pretty,” as she called it
to herself, but the subject never dwelt in her thoughts. And
she was entirely without vanity. Many a girl of far less
beauty, of no beauty at all, gives a hundred times more
consideration to the question of outward appearance than
would have been possible under any circumstances for
Blanche Derwent.
There seemed to be quite a number of people in the
vicarage drawing-room when they entered it. Stasy—who,
to tell the truth, was feeling a trifle shy, though wild horses
would not have drawn such a confession from her—had
insisted on coming some minutes later than the hour at
which they had been invited.
“I don’t want to seem so very eager about it,” she said to
Blanche. “And if we go early, we are sure to be set down to
talk to some of the Green people. It would be horrid.”

To some extent, she was caught in her own trap. A chair
was offered her between two girls, neither of whom she had
seen before, and who, she immediately decided, must
belong to the neighbours she certainly had no reason to feel
friendliness towards. For, whatever had been the motive,
and though very possibly their staying away was from the
social point of view more gratifying than their calling would
have been, no kindliness of any kind had been shown or
attempted by the good folk of Pinnerton Green to the little
family who had come as strangers among them.
Stasy glanced cautiously at the girls beside her. One was
plain, not to say ugly, and dressed with almost exaggerated
simplicity. Her features were heavy and ill-assorted; her
nose was large, and nevertheless seemed too short for the
curious length of her face; her eyes—no, she was not
looking Stasy’s way—her eyes could not be pronounced
upon.
“She is really ugly,” thought Stasy; “I haven’t seen any
English girl as ugly as she is. And how very plainly she is
dressed: I wonder if it is because she knows she is ugly. It
cannot be that she’s poor: all these common people here
are rich. Her dress is only”—Stasy gave another covert
glance at the cloth skirt touching her own—“only—no, it’s
good of its kind, though so plainly made, and yet—”
Yes, there was a “yet,” very decidedly, both as to dress,
which was the very best of its kind, and, when the girl
slowly turned to Stasy with some trivial remark, as to looks.
For her eyes were beautiful, quite beautiful, with the touch
of pathos in them which one sometimes sees in eyes which
are the only redeeming feature of an undeniably plain face.
“Have a little indulgence for me—I cannot help myself,” such
eyes seem to say, and Stasy, sensitive as quicksilver,

responded at once to the unspoken appeal.
“Thank you,” she said gently, “I have plenty of room—no, I
don’t mind being near the window,” and then she salved
over to herself her suavity to “one of those Wandle or Bracy
girls,” by reflecting that Blanche had said it would be very
wrong indeed to show anything but perfect courtesy and
kindliness at a party especially arranged for a charitable
object, though a slight misgiving came over her when the
owner of the beautiful eyes spoke again in an evidently less
conventional and more friendly tone.
“That was your sister who came in with you, was it not? I
am so glad to see her more distinctly. She is so—so very
lovely.”
Stasy, gratified though she felt on one side, stiffened
slightly. Miss Wandle should not comment upon Blanche’s
appearance, however favourably.
“Yes,” she said, “every one thinks so. I do, I can’t deny.”
Then she turned to her neighbour on the right. She was a
pretty girl, with wavy brown hair, and a charming rosebud
of a face. But her dress, though much more studied than
the austere but perfectly fitting tweed, jarred at once on
Stasy’s correct instincts. So did her voice, when in reply to
the inquiry as to whether any guild business had yet been
transacted, she said:
“Oh no, we always have tea first. Mrs Harrowby says it
makes us feel more at”—was there or was there not a
suspicion of the absence of the aspirate, instantaneously
and almost obtrusively corrected?—“at—at home; not so
shy about speaking out, you know.”
“Oh indeed,” said Stasy.

Then she turned again to the heavy face and the luminous
eyes, in whose depths she now read a twinkle of fun.
“I like you, whoever you are,” she thought. And as at that
moment Hebe came up with outstretched hand and cordial
“How do you do? You found your way the other day, I
hope?” an irrepressible little burst of enthusiasm made its
way through her caution.
“Is she not charming? She is always so perfectly sweet and
happy,” she said.
“Yes indeed,” her neighbour replied, and the bright
responsive smile on her face made one forget everything
except the eyes. “She is—perfectly charming. I like to see
that she gives the same impression to strangers as to those
who have known her long. I can remember her nearly all
my life, and yet every time I see her there seems
something new. She is—I daresay you know?—she is going
to be married to my brother Norman. Won’t it be delightful
to have her for a sister?”
And again the beautiful eyes gleamed with something
brighter than their ordinary expression of appeal.
Stasy gasped. Who, then, was this girl? For an instant, a
wild, ridiculous idea rushed through her mind that Lady
Hebe must be going to marry one of the Wandles or Bracys,
so prepossessed was she with her first guess about her
plain-featured neighbour. But she dismissed it at once, and
she began to feel shocked at her own want of discernment.
The colour mounted into her face as she replied to her
companions question.
“I didn’t know; at least,” hesitatingly, “I am not sure. I think
I did hear something, but I can’t remember. I— Please don’t

think me rude, but I don’t know your name.”
“I am Rosy Milward. We live at Crossburn, the dearest old,
old house in the world,” said the girl.
“Oh!” said Stasy. “Yes, I have heard your name. It will be
delightful to have Lady Hebe for your sister.”
But her tone was slightly melancholy. She had been
cherishing, half unconsciously perhaps, dreams of special
friendship, romantic friendship, between Lady Hebe and
herself (though she called it “us,” reluctant to leave out
Blanche from anything so charming). And now her dreams
seemed shattered. She—Hebe—was going to be married,
and here was a sister-friend all ready made for her. It was
much better never to expect to see or know any more of
the future wife of Mr Norman Milward.
Rosy was conscious of the underlying disappointment,
though she could not have defined it.
“I wish I could invite them to come to Crossburn,” she
thought to herself. “I don’t like to see such a young girl so
subdued and almost sad. But unless grandmamma would
call, of course I can’t, and I’m afraid there is no use in
trying for that.”
The Milwards had no mother, and their father’s mother, who
had to some extent brought them up, was old, and naturally
disinclined to make new acquaintances without strong
motives for doing so; somewhat narrow and exclusive she
was, too, in her ideas, and in this a great contrast to the old
friend, with whom, nevertheless, she had much in common
—Mrs Selwyn.
Just as Miss Milward was feeling about for some other topic
of conversation which might interest her companion, Stasy

bent towards her.
“Would you mind telling me who the girl is on my other side
—she can’t hear, she is speaking to some one else?”
Rosy glanced across Stasy: she had forgotten for the
moment who was sitting there.
“Oh yes,” she said; “that is—let me see. I often confuse the
two families: they are cousins. Oh yes; that is Miss Wandle
—Florry Wandle, Mrs Harrowby calls her. She helps a good
deal with the guild. She has a nice, pretty face, hasn’t she?”
“Very pretty,” Stasy agreed, and she meant what she said,
and something in Miss Milward’s tone gratified her. There
was a tacit and tactful taking for granted that their little
commentary on Miss Wandle was from the same point of
view: there was no touch of surprise that Stasy did not
already know the girl, or that the Pinnerton Green folk were
not of the Derwents’ “world.”
Then they went on to talk a little of the guild and its
interests, till a summons to Miss Milward to help at the tea-
table interrupted the tête-à-tête. But Stasy’s mercurial
spirits had risen again, and they rose still higher, when,
encouraged by an almost imperceptible signal from Lady
Hebe, she ventured to leave her place, and, as one of the
youngest present, volunteered her services in handing
about bread and butter and cakes.
And Blanche, meanwhile? On entering, she had at once
been led over to the other end of the room, which was a
long one, by Mrs Harrowby, and ensconsed in a corner
beside Lady Hebe.
“Now, I want to talk to you very seriously, Miss Derwent,”
said Blanche’s “girl with the happy face.”

“Mrs Harrowby and I are counting on your doing great
things to help us. You see it is such a disadvantage in any
little work of this kind for those who principally manage it to
be so much away. And if you could take interest in it, it
would be such a good thing for the girls. For I suppose”—
and she glanced up with a touch of apology—“I suppose you
will not be going to London for the season this year, as you
have come here so lately?”
“No,” said Blanche simply, “we shall certainly stay here. I
doubt if we shall ever go to London except for a day or
two’s shopping: we have no friends there.”
“It will be different, of course, when you have been longer
in England,” said Hebe. “And,” she added with a smile,
“when your sister comes out, I scarcely think she would be
satisfied with nothing more amusing than Pinnerton,
however content you are.”
Blanche coloured a little.
“You think me better than I am,” she said. “I should enjoy—
things—too, but if one can’t have them? But I think I should
mind for Stasy more than for myself. She is naturally more
dependent on outside life than I. She does feel it very dull
and lonely here, and I wish she had some companions.”
Hebe looked and felt full of sympathy.
“I hope your life here will brighten by degrees,” she said.
“Don’t you think your sister would do something to help us,
too? She seems so clever.”
“Yes, she is very quick, and she can be very amusing,” said
Blanche. “We should both be glad to do anything we can.
But have you not a good many helpers already? And those
other ladies—the residents here—they don’t go away. Could

not they take charge in your absence much better than a
stranger like me?”
She glanced across the room to where Miss Adela Bracy, a
small, capable-looking, dark girl, was at the moment saying
something in a low voice to the rosebud-faced Florry
Wandle. Lady Hebe’s eyes followed hers.
“They are very good, so far as they go,” she replied, “but
they are not quite capable of taking the lead. And they have
really as much to do as they can manage. It is some one to
replace myself when I am away that I want to find. And I
could explain it all to you so well, and get advice from you
too, I have no doubt.”
“I am very ignorant about such things,” said Blanche.
“Yes, but you have a good head, and you”—here Hebe
smiled and blushed a little—“well, you must know how I
mean. It would be so different explaining things to you: you
would see them from our point of view. These girls are very
good-natured and nice, but I never feel sure that they
perfectly understand.”
And then she went on to tell Blanche further details about
the little work she had inaugurated and carried on—so
simply, and yet earnestly, that Blanche’s full interest was
quickly won, and they went on talking eagerly till tea and
interruption came, as Hebe had to help Mrs Harrowby with
her hostess duties.
After tea, some of the ladies drew a little closer together:
they were the committee, I believe, and Mrs Harrowby read
aloud, for the benefit of all present, a short report of the
work that had been done during the last three months, and
then some one else sketched out what they hoped to do
during the summer, and what they were in want of to

enable them to carry out these intentions. Then Lady Hebe
announced Miss Milwards offer of a day’s entertainment for
the girls at Crossburn House, and Miss Milward was duly
thanked; and there was a good deal of practical and some
very unpractical talk, during which Mrs Harrowby and Hebe
managed to introduce the Misses Derwent as new members
whose assistance would be of great value, Hebe going on to
say that Miss Derwent had kindly consented to take her own
place during her absence in London. Altogether, it was
cheerful and informal, and, to Stasy especially, very
amusing.
But just as the Derwents were beginning to feel more at
home, and Blanche had been introduced to Rosy Milward,
and Stasy was laughing at Miss Wandle’s despair about her
girls’ insubordination at the singing class, which was her
special charge, there fell a wet blanket on the little party.
The door opened, and “Lady Marth” was announced.
Hebe’s face sobered. She had not expected her guardian’s
wife to call for her, as she had promised to be back before
the hour at which Lady Marth wished her to drive with her
to Blissmore, and Hebe was a very punctual person.
“Josephine!” she exclaimed. “It is not late. You said you did
not want me till—”
“Oh no, you are not late,” said the new-comer, after shaking
hands with Mrs Harrowby and one or two others. “I only
came on because Archie”—and here she suddenly turned
and looked round her—“where is he? I thought he was
behind me—”
“Who—Archie Dunstan?” said Hebe.
“Yes; he wanted to see you about something or other—
fishing or something—and he did not venture to come on

here alone, when he heard there was a meeting going on.
But it’s over, isn’t it? It doesn’t look very solemn.”
“Well, I think we have discussed everything we had to
settle,” said Mrs Harrowby, getting up again from the chair
beside Lady Marth, which she had momentarily occupied. “I
must say a word or two to Miss— Oh, here he is, Lady
Marth—here is Mr Dunstan.”

Chapter Eleven.
Ruffled Plumage.
“Yes, here I am,” said the young man, as he entered the
room and hastened up to Mrs Harrowby, no one suspecting
that in his rapid transit he had managed to take in the fact
of certain individuals’ presence. “Yes, here I am; and I
should apologise, I know, but it is all Lady Marth’s fault. She
dragged me here, and then left me in the lurch with the
ponies at the door, quite forgetting I was not the groom.
And then, no doubt, she has been wondering ‘what in the
world has become of that Archie.’”
The few within hearing could not help laughing, he
reproduced so cleverly Lady Marth’s coldly languid tones.
She laughed herself, and her laugh was a pleasant one.
“You are very impertinent,” she said. “And as for dragging
you here—you know you were dying for an excuse to get in
to see what one of Hebe’s meetings was like. He reminded
me of the legendary female who exists in so many families,
you know, whose husband was a Freemason, and she hid
herself to overhear their secrets,” she went on, to Miss
Milward, who happened to be nearest her, Mrs Harrowby by
this time having crossed the room to Florry Wandle and her
cousin.
“Well, my curiosity has not been rewarded—nor punished,”
said Mr Dunstan.
And as he spoke he glanced at Blanche, who was standing a
little behind Rosy. He had already shaken hands with her, in
an unobtrusive, friendly, yet deferential way, which

somehow gratified her, simple and un-self-conscious as she
was.
“He is such a rattle of a young fellow,” she said to herself; “I
wonder he remembers having met me before.”
“When will Hebe be ready?” said Lady Marth, with a sort of
soft complaint, as if she had been kept waiting for hours.
“Does she need to go on talking confidentially to all those
bakers’ and brewers’ daughters whom she is so fond of?—
Can’t you give her a hint to be quick, Rosy?”
She half turned, laying her hand on what she supposed to
be Miss Milward’s arm; but, somehow, Rosy had moved
away. The arm Lady Marth actually touched was Blanche’s.
Blanche started. She had been watching Archie.
“Can I—” she began; but before she had time to say more,
Lady Marth drew herself back.
“Where is Rosy?” she said haughtily. “I thought—I thought
the meeting was over, and that we were only ourselves. I
really must go,” and she stood up, drawing her cloak, which
had partly slipped off, more closely round her shoulders.
Mr Dunstans face grew stern, all the boyishness died out of
it, and he looked ten years older.
“Miss Derwent,” he said, in a peculiarly clear and most
respectful tone, “I do beg your pardon. I did not notice till
this moment that you were standing. If you are going, Lady
Marth, you will allow me to move your chair,” and, as he
spoke, he drew it forward a little.
Lady Marth gave him an icy glance over her shoulder, and
moved away. Blanche simply accepted the courtesy.

“I want to go too,” she said quietly; “but I must see Lady
Hebe for one moment, first.”
“Don’t hurry,” said Mr Dunstan; “she is saying good-bye to
those girls now, and she is looking towards you. It will do
Lady Marth good to be kept waiting for once, so pray be as
deliberate as you like. No one asked her to come here,
unless—unless, indeed, I did so myself. I don’t— She is
quite odious, sometimes,” he went on, disconnectedly,
looking, for once, not equal to the occasion.
Blanche lifted her serene eyes to his face.
“Did you think she was rude to me?” she said. “Please don’t
mind. She does not know me, or anything about me, so
what does it matter? I should mind if any one I knew or
cared about was disagreeable or unkind; but when it is a
perfect stranger it is quite different.”
The young man looked at her with a mixture of admiration
and perplexity. Had she not taken in the covert
impertinence of Lady Marth’s speech?
He smiled a little as he replied. “You are very philosophical
and very sensible, Miss Derwent,” he said. “But still, I am
afraid you must think English people have very bad
manners.”
“I have not seen many; I can scarcely judge,” she said. “But
I should not like to say so. I think Lady Hebe and that old
lady, Mrs Selwyn, and Mrs Harrowby—oh, and others I could
name—have charming manners.”
“Why don’t you include my aunt—by marriage only—at
Alderwood?” he said maliciously.
Blanche laughed a little.

“Some people can’t help being awkward, I suppose,” she
said. “She means to be kind, I think.”
Archie’s face brightened.
“Now you are better than sensible,” he said eagerly—“you
are truly kind and charitable. And you are not mistaken. My
aunt does mean to be kind, so far as she can understand it.
A great many ugly things in this world come from
ignorance, after all.”
“And from want of imagination,” said Blanche, thoughtfully.
“Want of power to put one’s self in the place of another.”
She was beginning to think there was more in this young
man, who had struck her at first as a mere boyish rattle;
she was beginning to have a touch of the delightful
suspicion that he was one who would “understand” her; and
her face grew luminous, and her sweet eyes brighter, as she
spoke.
He glanced at her again, with a smile in which there was no
disappointment for her.
“Yes, I often think so; I have come to think so. But you are
very young to have made such a discovery.”
Blanche could scarcely help laughing at his tone, she had so
completely made up her mind that he was little, if any, older
than she.
“Why,” she began, “I cannot be much—” But here she
suddenly caught sight of Stasy’s face looking across at her
with a sort of indignant appeal.
“Do come away, Blanchie,” it seemed to say.

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