MONEY AND BUSINESS AFFAIRS.

Manawatu Standard, Volume LVII, Issue 305, 24 November 1937, Page 4

MONEY AND BUSINESS AFFAIRS.

THE CAPITAL MARKET. (By ‘TLJ.K.”) ' Australia’s conversion loan of £11,.409,965 which was issued at 97 failed to receive the public support anticipated, and ill-* mule 'writers must find the balance, not subscribed by the public. The interest rate on the issue was fixed at £3 10s per cent, but as it was issued at a discount of 3 per cent, the actual return to the investor is equal to £3 15s Id. There must be some reason for the' failure of the issue, for Australian credit is good; that is to say, Australia lias met all her obligations promptly and in full. Moreover, there is an abundance of loanable funds in London. Furthermore, provincial towns like Sheffield have had no difficulty in borrowing at 3$ per cent at par. The failure must be due largely to the nervous state of'the market. It may also be possible that investors are looking for a higher return than 3f per cent. The actual failure makes ,no difference to the Commonwealth, for the loan having been underwritten the burden falls on the underwriters.

The mode of procedure in raising loans in London is to invite applications. for the amount of the loan, the terms being fixed by the vendor, in the case of the Australian loan all the terms were fixed. With such loans it is always advisable to have them underwritten. At one time most loans were submitted/ to tender in the same way as British Treasury Bills are. The Government notifies the amount of the bills, and tenderers name tlio amount they will advance and the rate of interest. These Treasury Bills are taken up mainly by the banks which find them convenient, fop, instead of holding large sums of mopey idle, they find temporary investment in Treasury Bills, which are discounted at about 10s 2d per cent. London bankers have refused to lend Mussolini £20,000,000, not withstanding that a high rate of interest Was offered, aqd the currency of the loan was for three years. Italy’s credit standing is down to zero, and there will yet be considerable trouble in that country. Two or three months ago, a capital levy of 10 per cent was decreed, and later restrictions on imports were put into force. Yet Italy is building warships and aeroplanes, apd is maintaining huge armies in Libya, Spain, and Abyssinia. Everything is being paid for with paper money. But how long will the people endure serious hardships, merely to gratify the vanity of Signor Mussolini? A revolution in Italy is not beyond the bounds of possibilty in the near future. The same applies to Japan. FIDUCIARY NOTE ISSUE. At the request of the Bank of England the British Treasury has given the bank permission to issue £20,000,000 of fiduciary notes, during a period of two months beginning on November 15. The fiduciary note issue of the Bank of England constitute the notes issued against securities (British Government) and not against gold. Under the Bank Act of 1925 the bank was privileged, subject to the authority of the Treasury to issue up to £260,000,000. This was reduced to £200,000,000 earlier this, year when the bank acquired £60,000,000 in gold from the Exchange Equalisation Fund, That, of course, made no difference to the aggregate note issue. Now the bank anticipates that the Christmas holiday expenditure will create a demand for an additional £20,000,000 of notes. If the bank added £20,000,000 of gold to its reserve there would; be no need to. apply to tlic Treasury. The demand for the notes will be temporary only, and instead of finding gold the bank can issue notes against Brite ish Government stocks.

But the Christmas expenditure in Britain will far exceed that of last year, when the record was £474,115,561. Sinco last year there has been considerable industrial activity in Britain, and notwithstanding the situation in the United States there is no indication of any glowing dowii of business activity in Britain. Successive French Governments have been confronted with financial difficulties and internal unrest, which have affected the international positipn. In October of last year M. Blum, who was then Prime Minister, decided to Jet the franc find its own level in the foreign exchange market, and at the sdme time joined Britain and the United States aiid formed the tripartite exchange agreement which has been a factor, in stabilising the foreign exchanges. Even since then Erance has had other troubles, and much gold lias left the country. Now some of this gold is returning te the country, about £21,000,000 being , returned , in the course of a few days. This should give some assistance to the Government in putting the - finances of the country on a sounder basis. The Budget deficit is. large, and until, the Budget is balanced there will be no security. y-- THE UNITED STATES. The same thing is troubling the United States, and business men ; and i financiers are urging-'the Administration to take the necessary; / steps to balance the, Budgbt. The financial difficulties that appear to be affecting most countries demand international consideration. M. Zeeland, the exPrime Minister of Belgium, undertook the task of seeing what support would be given to an economic.. conference, and his report has yet to come in. But now that the United States is emerging from its traditional isolation, and actually negotiating a trade pact with Britain, another world conference on currency and exchange would receive a great deal of support. International trade is the basis of world prosperity, and international trade cannot thrive unless there is a measure of stability in tlie exchanges. TRADING BANKS’, RETURNS. The return of the trading banks in the Dominion for the month of October shows a small increase in the demand or free deposits as compared with September, tlie figures being £33,311,659, against £32,890,247,. tlie increase being a little more than £421,000. In June last the free deposits amounted to £36,052,543. The time or fixed deposits again show a shrinkage. The total for October was £32,311,856, as compared with £33,051,072 in September, a decrease of £7so,ooo.'The total of the free; and fixed deposits at £65,623,575, shows a shrinkage of £317,000 compared with September last. This is p 1 tly accounted for -by the greater note, circulation which shows an ■ increase of £160,000 compared with September. The most interesting item is the rapid increase in the advances. At the end of October the .total was £52,646,614, and at the end of September £50,695,729, an increase of nearly £2,000,000.in the month. At the end of June the adyances totalled; £47,760,899, so . that in the course of about four months the advances, have, increased by nearly. £5,000,000. The ratio of advances to free and fixed, deposits combined was about 80 :per cent. There must have been some heavy buying for the Christmas trade.