HIGH EXCHANGE RATE

Hawke's Bay Tribune, Volume XXII, Issue 13, 29 December 1931, Page 8

HIGH EXCHANGE RATE

NEW ZEALAND AND AUSTRALIA. The high exchange rate at present existing between New Zealand and Australia m favour of the former presents an opportunity for New Zealand investors to purchase Australian consols at a price which will show a good profit in the event of the exchange rate falling substantially, says Jobson's Digest. The prices at which Australian consols have been selling of late, although higher than those current some weeks ago, are still much below par. By reason of the buying rate of New Zealand exchange in Australia being £llB 10/-, the discount to a New Zealand investor would be still greater In the case of the four per cents., 1938, the price at the time of writing is £92 15/-, but to the New Zealand investor the cost after deducting accrued interest from the above price, and with exchange at £llB 10/-, would be £77 3/8. The discount would be still greater if the investor were to buy any of the other four per cents., for these run for a longer term. Those maturing in 1950 are the lowest in price, which to the New Zealand buyer, with exchange as at present, would be £74 13/-.

It remains for the investor to decide for himself as to the future movement of the exchange. In the ordinary course of events the world depression may be expected to pass, and conditions to become normal. Tbe trade relations between the Dominion and the Commonwealth should improve, and it is scarcely to be expected that exchange will continue at the present high rate indefinitely. Its return to par would mean that the buyer of Australian consols would be able to realise his holding at the Australian price without any loss on account of exchange. Before taking any action he should consider not only the probabilities of a decline in exchange rates, which appear to be promising at present, but also the prospect of the scheme propounded by Australian economists for the stabilisation of the AustralianLondon rate at £l3O.

It is essential, however, that the investor should realise that meanwhile the income return will not be high. The interest yield on, eay, four per cents., 1950, would be £5 7/2 per cent., which would be reduced by the exchange to about 4J per cent. Still, it may be worth accepting this return in the hope of reaping a satisfactory profit should exchange fall materially.