6. joint of the most unique financial transactions in history was when France and Great Britain joined to issue $500,000,000 five-year 5 per cent bonds. Dated October 15, 1915, and due October 15, 1920, they were offered at 98 and interest yielding nearly 5% per cent. Prin cipal and interest are payable in New York City in United States gold coin, without deduction for any present or future tax of either government. The bonds are convertible at the holder's option on any date not later than April 15, 1920, or at maturity, provided notice is given before that date, par for par, into 4% per cent bonds, the joint obligation of the two countries, maturing in 1940, but redeemable in 1930 and thereafter. Considering the price record of British Consols from 1907 to 1914, a 4% per cent 15 year bond would have ranged between a high level of 120.44 and a low level of 110. The conversion privilege seems, therefore, to hold out the promise of considerable profit.
7. Russian Russian government on February 1, 1916, offered a portion of its 2,000,000,000 roubles 5% per cent Short-Term War Loan, due February 1, 1926, thru American bankers. The bonds are accepted on government contracts, on the deferred payments of excise, and to use as a bond for customs duties. They are permanently exempt from Russian income taxes. The holders may ex change their bonds at par for any internal loan bonds which may be issued during 1916 for an equal or longer term. Such a bond for 1,000 roubles was purchasable in New York City in August, 1916, at $325, the rouble being quoted at about 31 cents. The recent price fluctuations of the rouble in New York Exchange have been The mounting of exchange against Russia was not due to the decline of Russian credit, but to the violent reversal of the balance of trade thru the importation of war munitions into Russia and the cutting off of agricultural exports. The import and export statis tics of recent years will reveal what has hap pened.
Should the rouble return to normal—that is to $.5146—by the time these bonds mature there would be a profit amounting to $189.60 on each bond, or 58.34 per cent on the investment. This profit is en tirely apart from the interest. As exchange operates against the cashing of the interest coupons they could be deposited in a Russian bank and a receipt taken while the owner awaited a favorable ratio of exchange. Arrangement was made to delay the principal pay ment in like manner. The coupons remained valid for ten years after their maturity, and the bond for thirty years after maturity. The Russian government debt in 1913 was but $23.75 per capita, as compared with $157.46 for France, $92.09 for Great Britain, 877.17
for Italy, 873.06 for Germany, and $67.91 for Austro Hungary. The Russian Empire has never repudiated or defaulted on its obligations.
8. American Foreign Securities 1916 the American Foreign Securities Company was organized as an American corporation with a capital of $10,000,000. It arranged to loan $100,000,000 to France, raising the money by the sale of its bonds. In return it received from France obligations to pay prin cipal and interest of the issue and also, as additional security, a collection of selected collateral composed chiefly of the bonds of neutral European countries. It was stipulated, as a part of the agreement, that the collateral should always be maintained in such amount that the market value of it would exceed the amount of the bond issue by 20 per cent. The Bankers' Trust Company of New York was designated as trustee of the fund. On this basis, the company offered to the public on August 1, 1916, $94,500,000 of its three year 5 per cent gold notes at $98 and interest, yielding the investor 5.735 per cent.
9. British secured September 1, 1916, a syndicate of American banks offered $250,000,000 two-year 5 per cent secured loan gold notes of the Uni ted Kingdom of Great Britain and Ireland, at 99 and interest yielding slightly over 5% per cent. These notes are a direct obligation of the issuing govern ment, and in addition they are secured by the deposit of the following securities approved by J. P. Morgan and Company: The valuations are calculated in terms of prevail ing market prices and rates of exchange. In case of a depreciation in the value of the collateral, the gov ernment agrees to deposit additional securities so that the fund shall always be at least 120 per cent of the outstanding notes. The notes are free from all Brit ish taxes, present or future.
The floating of this loan assisted in maintaining the equilibrium in the balance of trade. By locking up for two years a vast quantity of British-owned securities which otherwise might have been dumped upon the American investment market, it served to aid in the production of the inflated prices prevailing in the latter part of 1916.
It is to be noticed, however, that in the trust deed securing this issue, the privilege of withdrawing the securities from the trustee upon the deposit of cash is retained by the borrowers. This same provision is found in the deeds securing other foreign collateral loans based on American securities. This privilege makes it possible to unload the securities upon the American public if the boom of the stock market should make it profitable to do so.