Having established the precedent of a secured loan, all succeeding
English issues in this country have been backed up with ample
collateral. These bonds have a ready market, an important detail that
the investor must not overlook in purchasing foreign securities.
Now turn to the borrowings of France in the United States. With this
great nation, whose middle name is Thrift, Uncle Sam was no respecter of
past performance. For the one separate French external loan he exacted
his pound of collateral. As a matter of fact it amounted to nearly a
ton.
I refer to the issue of $100,000,000 Three Year Five Per Cent Gold Notes
bearing the date of August 1, 1916. To float this loan the American
Foreign Securities Company was formed which arranged to lend the French
Government $100,000,000. As security the Company--it was merely a group
of American bankers, required France to deposit stocks and bonds having
a value at prevailing market and exchange rate of $120,000,000. Should
the value of these securities fall below this sum they must be
replenished until there is a margin of twenty per cent in excess of the
principal of the loan.
These securities throw an interesting sidelight upon the resource of the
French Republic and its ability to borrow desirable collateral from
patriotic citizens. They include obligations of the Government of
Argentine, Sweden, Norway, Denmark, Switzerland, Holland, Uruguay,
Egypt, Brazil, Spain, and Quebec.
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