International Finance

ernationally, if invested by bankers in bills of exchange which form a comparatively small part of their assets. It is true that bankers also invest money in securities, and that some of

h they can only draw after giving a week's notice or more. On their deposit account they receive interest, on their current account they may in some parts of the country receive interest on the average balance kept. But the deposit account is most often kept by people who have to have a reserve of cash quickly available for business purposes. The ordinary private investor, when he has got a

nto loans issued by Governments, municipalities and other public bodies. Let us take the Governments and publi

sing its output of wealth. In England the Government has practically no debt that is represented by reproductive assets. Our Government has left the development of the country's resources to private enterprise, and the only assets from which it derives a revenue are the Post Office buildings, the Crown lands and some shares in the Suez Canal which were bought for a political purpose. Governments also borrow money because their revenue from taxes is less than the sums that they are spending. This happens most often and most markedly when they are carrying on war, or wh

than pay the interest on the money borrowed. Or they may put it into public parks and recreation grounds or municipal buildings, or improvements in sanitation, thereby beautifying and cleansing the town. If they do these things in such a way as to make t

per cent. of the amount that they apply for, which is payable on application. If the loan is over-subscribed, the applicants will only receive part of the sums for which they apply. If it is not fully subscribed, they will get all that they have asked for, and the balance left over will be taken up in most cases by a syndicate formed by the bank or firm that issued the loan, to "underwrite" it. Underwriting means guaranteeing the success of a loan, and those who do so receive a commission of anything from 1 to 3 per cent.; if the loan is popular and goe

to be happening in the years before the war.) Negotiations are entered into with a group of French banks and an English issuing house. The French banks take over their share, and sell it to their customers who are, or were, in the habit of following the lead of their bankers in investment with a blind confidence, that gave the French banks enormous power in the international money market. The English issuing house sends round a stockbroker to underwrite the loan. If the issuing house is one that is usually successful in its issues, the privilege of underwriting anything that it brings out is eagerly sought for. Banks, financial firms, insurance companies, trust companies and stockbrokers with big investment connections will take as much underwriting as they are offered, in many cases without making very searching inquiry into the terms of the security offered. The name

ew loans so that they might expand on their merits and then sell them at a big profit when they had created a public demand for them. There seems to be no doubt that this kind of thing used to happen in the dark ages when finance and City journalism did a good deal of dirty business between them. Now, the City columns of the great daily papers have for a very long time been free from any taint of this kind, and on the whole it may be said that finance is a very much cleaner affair than either law or politics. It is true that swindles still happen in the City, but their number is trivial compared with the volume of the public's money that is handled

whose account they offer loans, that they state little more than the bare terms of the issue as given above. Others deign to give details concerning the financial position of the borrowing Government, such as its revenue and expenditure for a term of years, the amount of its outstanding debt, and of its assets if any. If the credit of the Kingdom of Ruritania is good, such a loan as here described would be, or would have been before the war, an attractive issue, since the investor would get a good rate of interest for his money, and would be certain of getting par or ￡100, some day, for each bond for which he now pays ￡97. This is ensured by the action of the Sinking Fund of 1 per cent. cumulative, which works as follows. Each year, as long as the loan is outstanding the Kingdom of Ruritania will have to put ￡165,000 in the hands of the

anything at the time when the prospectus appeared or suggested the likelihood that Ruritania might be involved in war, then the underwriters would have had to take up the greater part of the loan and pay for it out of their own pockets; and this is the risk for which they are given their commission. Ruritania will have got its money less the cost of underwriting, advertising, commissions, 1 per cent. stamp payable to the British Government, and the profit of the issuing firm. Some shipyard in the north will lay down a battleship and English shareholders and workmen will benefi

ayment of them when drawn and to collect the coupons at their several dates. They are the usual form fo

which is a receipt, but the possession of which is not in itself evidence of ownership. There are no coupons, and the half-yearly interest is posted to stockholders, or to their bankers or to any one else to whom they may direct it to be sent. Consequently whe

underwrite them expect higher rates of commission, while subscribers can only be tempted by anticipations of more mouth-filling rates of interest or profit. This distinction between interest and profit brings us to a further difference between the securities of companies and public bodies. Public bodies do not offer profit, but interest, and the distinction is very important. A Government asks for your money and promises to pay a rate for it, whether the object on which the money is spent be profit-earning or no, and, if it is, whether a profit be earned or no. A company ask

s or otherwise. These are the first charge on the concern after wages and other working expenses have been paid, and the shareholders do not get any profit until the interest on the company's debt has been met. Further, the actual capital held by the shareholders is generally divided into two classes, preference and ordinary, of which the preference take a fixed rate before the ordinary shareholders get anything, and the ordinary shareholders take

of interest, and, in most cases, a claim for repayment sooner or later. The shareholder, whether preference or ordinary, puts his money into a venture with no claim for repayment, unless the company is wound up,

35, a million of 6 per cent. cumulative preference stock, giving holders a fixed dividend, if earned, of 6 per cent, which dividend and all arrears have to be paid before the ordinary shareholders get anything, and a million in ordinary shares of ￡10 eac

re a means by which the movements of commodities from market to market are financed, and the gap in time is bridged between production and consumption. Stock Exchange securities are more permanent investments, put into industry for longer periods or for all time. Midway between them are securities such as Treasu

broker to sell them; anyone who wants to do so can acquire a holding in them by a purchase. The terms on which they will be bought or sold will depend on the variations in the demand for, and supply of, them. If a number of holders want to sell, either because they want cash for other purposes, or because they are nervous about the political outlook, or because they think that money is going to be scarce and so there will be better opportunities for investment later on, then the price will droop. But if the political sky is serene and people are saving money fast and investing it in Stock Exchange securities, then the price will go up and those who want to buy it will pay more. The price of all securities, as of everything else, depends on the extent to which people who have not

d so their feelings about prices react on one another's nerves and imaginations, and the Stock Exchange p