ECONOMIC SECRETS.

Waikato Times, Volume 119, Issue 19878, 6 May 1936, Page 9

ECONOMIC SECRETS.

(To the Editor.) | Sir,—-—I always enjoy Mr 11. G. I Young's letters; they are so forth—j right. He is quite right in saying that t “a very small portion 01' international , loans is found by the public," because ' there are so few of these loans, and; they really are an exception. ApurL: from those initiated by the League oi ‘Nutions, are there, indeed, any? ‘ But if Mr Young was referring to‘ tloans such as those floated by _\'e\\' iZealand—and the letter seemed to ‘indlcate that—then he is stressing something that is not important. The ‘ thanks may hold a great percentage oi . ithe issues, because there is on openl fmoney market and all banks prefer to ; ‘hlfl'e ample reserves invested in forms ‘ ‘that can be easily liquidated, and Go—lvernlnent securities are the best pos< isible. Possibly Mr Young knows that as a loan approaches maturity more ‘and more of the serlp passes into the ‘hends of the banks. The reason is ‘clear. Trustees prefer ions-dated investments, and so when they see an iopportunity to convert from a loan ‘with, say, six years to run into one 01' ‘25 years they at once sell the short‘datcd issue and buy the new. The ishort~daied scrip is exactly what the thanks prefer, and so, as the loan runs on, more and more of it comes into the hands of the bunks. That is the usual order of business. and it would not prove at all that the banks bought the strip by writing tlgures in it book. They probably bought what they have by giving cheques on the Bank of England, where they keep ‘their surplus deposits, and their bal—ances would be reduced accordingly. They would have less liquid cash and larger investments. The processgoes on continuously. It is, indeed, a large part of banking. . What‘would be interesting, and in— ‘ formative, would he figures relating to the number of applicants for a new issue and the average amount of each application. The ultimate destination of the scrip cannot mean much, in an open market, but the number of uppli eants would show Mr Young und' others how widespread \\‘us the tiemand for the issue. 5

As for the discount. at which the 'new loan is to be issued, that surely is all a matter of market conditions. The loan must be able to compete with the thousands of others available and the terms fixed accordingly. That explains the cash premium, or “turn." of 305 per cent. offered to those “no will convcrt their holdings, it it were not done, then they would accept the cash and promptly invest in some other issue that would give the best return in that type of security. They are being asked to convert from 6 per cent. to about £3 25 on redemption, and Mr Young would hardly expect them to do that at pain—l am. elu., J. UALSJIURE. Hamilton, May 5.