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DIVISION O F I N T E R N A T I O N A L F 1 N A N C C BOARD OF GOVERNORS F.DERAL%%E,Y,TEM H.M No. 128 f) : ' j November 6 , 1963. I ^ A P I T A U l l A R K E T DEVELOPMENTS ABROAD I . Germany I I . Nine Charts on F i n a n c i a l Markets Abroad Germany: Money and C a p i t a l Markets s - mid-September - October, 1963 ^ Money market c o n d i t i o n s t u r n e d , e a s i e r w i t h t h e p a s s i n g of s e a s o n a l demands on t h e banks i n September„ Funds were a p p a r e n t l y a v a i l a b l e i n amnle amounts and commercial banks were i n a p o s i t i o n t o i n c r e a s e t h e amount of funds employed a b r o a d . The bond market turned v e r y a c t i v e with s e v e r a l p u b l i c a u t h o r i t i e s 1 i s s u e s s e l l i n g out q u i c k l y as b o t h domestic and f o r e i g n demand were h e a v y . " P a r t of t h e demand f o r bonds may have been t h e r e s u l t of a switching f r o m stocks i n t o bonds, as t h e former came under some s e l l i n g p r e s s u r e i n October, D i s a p p o i n t i n g d i v i d e n d announcements by some s t e e l f i r m s and the i n s o l v e n c i e s of the S t i n n e s concerns, followed by rumors of l i q u i d i t y d i f f i c u l t i e s of Krupp, caused nervousness i n the s t o c k market, p a r t i c u l a r l y among f o r e i g n h o l d e r s of German s h a r e s . But t h e r e are i n d i c a t i o n s t h a t f o r e i g n funds p u l l e d out of t h e stock market n e v e r t h e l e s s remained i n Germany, Germany's balance of payments s u r o l u s continued t o i n c r e a s e , amounting t o $695> m i l l i o n i n the f i r s t e i g h t months of t h i s y e a r , as compared with a d e f i c i t of $5>6 m i l l i o n f o r t h e corresponding p e r i o d of 1962. In September, the t r a d e balance was reduced from the high August l e v e l , but c a p i t a l i n f l o w s i n t o Germany r e p o r t e d l y continued i n September and October, and f u r t h e r subs t a n t i a l balance of payments s u r p l u s e s a r e expected f o r both months. The DM was very s t r o n g i n f o r e i g n exchange markets during the p e r i o d under r e v i e w . The p a s s i n g of the Chancellorship from Mr. Adenauer t o Dr. Erhard a p p a r e n t l y had no r e p e r c u s s i o n s i n the f o r e i g n exchange markets or on the stock market. The new Government's p o l i c y d e c l a r a t i o n s t a t e d t h a t the p r e s e r v a t i o n of the s t a b i l i t y of the DM would be one of i t s major p r i n c i p l e s . On the whole, d r a s t i c p o l i c y changes a r e not e x p e c t e d . Money' market e a s i e r . With t h e passing of t h e major September t a x d a t e and t h e e n d - o f - t h e q u a r t e r r e q u i r e m e n t s , the money market turned e a s i e r . Day-to-day money, which had been quoted i n F r a n k f u r t a t 3-1/2 t o 3 - 7 / 8 p e r cent a t the end of September, was quoted from 2 t o 2-7/8 per c e n t a t t h e end of October. (See Table 1 . ) The p r e s s r e p o r t e d t h a t , with t h e easing i n t h e money market, banks were p u t t i n g f u n d s abroad i n October, The r a t e s moved somewhat higher a t the beginning of November, r e f l e c t i n g a minor t a x d a t e , but t h e r e s t i l l appeared t o be ample funds a v a i l a b l e . Aside from the s e a s o n a l demands on t h e banks, t h e major f a c t o r i n t h e e a r l i e r money market s t r i n g e n c y was t h e p u b l i c a u t h o r i t i e s ' cash p o s i t i o n , w i t h OFFICIAL USE ONLY (Decontrolled a f t e r s i x months) OFFICIAL USE ONLY Table 1 . Germany: - 2 - Money Market Rates i n F r a n k f u r t , August-October, 1963 —/ ( i n p e r cent per annum) Day-to-day money August . 1 - 7 2-3/U - 3-1/8 e-is 16-23 2k-31. September 1 - 7 8-15 16-23 2U-30 October 1-7 8-15 - 16-23 21-31 Three-month loans 2-3/8 - 2-7/8 2 - 3 / 8 - 2-3/U 2-l/U - 2-7/8 3-3/lt - h 3-3/U - U 3 - 3A 3-3A 2-5/8 2 2-5/8 3-1/2 - 3 -2-5/8 - 3-3/8 - 3-7/8 3-3/U - 3-7/8 3-5/8 - 3-3A 3-3/U 3-3/U 3-l/U 2-1/2 2-5/8 2 - 3-3/U 3-1/U 2-7/8 2-7/8 5 5 5 - 5-1/8 - 5-l/U - 5-i/U 5-l/U a7* Highest and lowest r a t e s quoted each week by F r a n k f u r t banks Source: Deutsche Bundesbank funds being withdrawn from t h e domestic economy f a s t e r than they were put back i n c i r c u l a t i o n , (See Table 2 . ) However, higher p u b l i c cash e x p e n d i t u r e s i n August a c t e d t o e a s e bank l i q u i d i t y p o s i t i o n s , and i t i s expected t h a t during t h e f o u r t h q u a r t e r the p u b l i c s e c t o r w i l l add t o t h e l i q u i d i t y of the banking s e c t o r . P r e p a r a t i o n f o r year-end window d r e s s i n g pushed the t h r e e months r a t e up from 3-3/U p e r cent a t the end of September t o 5-l/L per cent i n October. This compares with t h e U-l/U - U-5/8 range quoted i n October 1962, and r e f l e c t s the g e n e r a l l y higher l e v e l of i n t e r e s t r a t e s p r e v a i l i n g t h i s y e a r . OFFICIAL USE ONLY OFFICIAL USE ONLY - 3 ~ Table 2. Germany: ^Factors i n c r e a s i n g (+) or reducing ( - ) commercial bank r e s o u r c e s 9 1962 October 1963 ( i n b i l l i o n s of DM, q u a r t e r s and months) 1 9 6 2 II I Market f a c t o r s : Notes i n c i r c u l a t i o n Public authority deposits Bundesbank f o r e i g n exchange o p e r a t i o n s Other Total C e n t r a l Bank c r e d i t operations g Open market o p e r a t i o n s Borrowings a t Bundesbank Total O v e r a l l e f f e c t on bank ""liquidity Compare Change i n r e q u i r e d reserves " + ,7 -1,6 s ,8 H I I IY II .-1*5 +1,0 ,6 =12 + »2 -3,5 -1,5 +1,2 +1,6 +1.3 + »u +1,0 + .3 +2,1 + + ,1 - «6 + ,2 + ,2 + el 7 - + >2 = 1 - i k + ,2 . + ,3 + ?2. + -3 - ,2 - . k + .9 - *2 - .1 a/ - a/ + ,k ~ -2 + .5 - .3 . a/ + \7 - .1 +1,0 ,7 ,u r6 +l,L + -3 ,+ ,k o3 + .8 + + ,3 - >6 + e3 + .3 a/ + .2 + ,2 +""TU a/ + ,1 + ,1 + ,2 .3 - 4 + ,7 + *7 1_9 6 3 J u l y Aug» S e p t . O c t J y »3 + . 2 + .3 *9 - 1 . 2 1—=5 - - 0 1/ October 1 - 2 3 only a / Less than DM 50 m i l l i o n Source; Deutsche Bundesbank Monthly Report and Weekly r e t u r n s f o r September October Bond market a c t i v e , With the end of t h e summer, the p e r i o d of a p p a r e n t s a t i a t i o n of t h e bond market a t the s i x per c e n t coupon r a t e a l s o ended, The f i n a l DM 300 m i l l i o n t r a n c h e of t h e F e d e r a l loan i s s u e d t o f i n a n c e t h e 1963 budget d e f i c i t was q u i c k l y absorbed and f o r e i g n p a r t i c i p a t i o n -was r e p o r t e d l y heavyc as was a l s o the case f o r a DM 15>0 m i l l i o n loan f l o a t e d by the R e c o n s t r u c t ion Loan Corporation ( K r e d i t a n s t a l t f u e r Wiederaufbau) i n October, A DM 110 m i l l i o n loan f l o a t e d by the F e d e r a l P o s t a l System was h e a v i l y o v e r s u b s c r i b e d and sold out- on t h e day the books opened, again w i t h very a c t i v e f o r e i g n p a r t i c i p a t i o n , Foreign i n t e r e s t was r e p o r t e d to have come p a r t i c u l a r l y from Switzerland but i t was thought t h a t the funds involved were p r i m a r i l y I t a l i a n . OFFICIAL USE ONLY OFFICIAL USE ONLY - h - The FcAeZ. bond i n d e x moved s l i g h t l y higher during October, a f t e r having d e c l i n e d i n September, As i n p a s t months, the p u b l i c a u t h o r i t i e s continued t o be t h e most a c t i v e borrowers i n the bond m a r k e t I n August t h e r e were no placements of i n d u s t r i a l bonds and t o t a l new p r i v a t e i s s u e s were v e r y s m a l l , (See Table 3 , ) This may i n p a r t r e f l e c t the C a p i t a l Market Committee's moves t o l i m i t access t o the market i n August, because the m a r k e t ' s w i l l i n g n e s s to absorb a s i z e a b l e amount a t the p r e v a i l i n g s i x per c e n t r a t e seemed, d o u b t f u l a . However s c u r r e n t r e p o r t s suggest t h a t , with p r o f i t margins improving s p r i v a t e borrowers show l i t t l e i n t e r e s t i n the bond market; and t h e F r a n k f u r t e r Allgemeine Zeitung f e l t t h a t were i t not f o r the very a c t i v e borrowing by p u b l i c a u t h o r i t i e s 3 t h e c u r r e n t l i v e l y demand f o r German bonds would have brought downward p r e s s u r e on the long-term i n t e r e s t r a t e » Although t h e F e d e r a l Government has borrowed up t o the l i m i t a u t h o r i z e d i n the 1963 budget, i t i s thought t h a t other p u b l i c b o d i e s , s u c h as the F e d e r a l Railways, w i l l continue t o borrow a c t i v e l y u n t i l t h e end of the year» Table 3* Germanys Gross Placements i n S e c u r i t y Markets ( m i l l i o n s of DM, month or monthly average) 1962 III IV 113 358 60 187 1U3 189 32 259 62$ 3gL 923 532 L8o T o t a l g r o s s bond placements 3 / L I S ? 78L Gross share placements 170 . ."Occasional" borrowers bondsi Industrial Public a u t h o r i t i e s Foreign i s s u e r s Other bonds 2 / Total Mortgage and communal bonds T o t a l s e c u r i t y placements a t issue value 172 1,329 . 95h II I 1963 June 88 3U1 15 311 k66 1^3 . 1J5 172 81 692 U6l 979 U97 652 578 527 701; 50U 1;S75 1,270 988 _g: 5g 1,321 l,0li0 1,730 k S i U16 1,683 1,001 1UU 138 1,827 1,139 1 / Market value „ ? / Mostly bonds of s p e c i a l i z e d c r e d i t , i n s t i t u t i o n s , 3 / Includes medium-term n o t e s ( K a s s e n o b l i g a t i o n e n ) , Sources Deutsche Bundesbank Monthly Report, Table V, 6, - F e d e r a l Budget, F e d e r a l bond f l o t a t i o n s a u t h o r i z e d f o r t h i s f i s c a l year were completed i n October - However , with the d i s p u t e r e g a r d i n g the share the F e d e r a l Government can expect from the income t a x e s c o l l e c t e d j o i n t l y w i t h t h e Laender s t i l l u n r e s o l v e d , t h e r e remains an e s t i m a t e d DM 1,2 b i l l i o n t o be f i n a n c e d - Since borrowing a u t h o r i t y has been exhausted, i t i s expected t h a t the F e d e r a l Government w i l l have t o t a k e up cash c r e d i t s a t the Bundesbank f o r t h e amount r e q u i r e d , OFFICIAL USE ONLY OFFICIAL USE ONLY -5 - Chancellor Erhard s t a t e d i n h i s p o l i c y d e c l a r a t i o n t h a t t h e p r e s e r v a t i o n of t h e s t a b i l i t y of the DM would be one of the Government's main concerns, T h e r e f o r e 196U budget o u t l a y s are t o be held to a r a t e of growth equal t o t h e a n t i c i p a t e d growth i n GNP i n 196U, The c u r r e n t e s t i m a t e of a 6 per cent growth i n GNP i n c u r r e n t r i c e s y i e l d s a 196U budget c e i l i n g of DM 60„2 b i l l i o n , as a g a i n s t DM 56»8 b i l l i o n 1963= However s .the 1961*. budget t o t a l may be r e v i s e d e x t e n s i v e l y when the d i s p u t e 'er the d i v i s i o n of t a x revenues i s s e t t l e d . Stock Market. The s p a t e of f a v o r a b l e economic news, which brought t h e FoAoZ. stock index t o a new high i n the second week of September, was i n t e r r u p t e d by t h e news of the i n s o l v e n c i e s of the two s e p a r a t e Hugo S t i n n e s concernss t h a t c o n t r o l l e d by Hugo S t i n n e s , J r . and t h a t c o n t r o l l e d by h i s mother and b r o t h e r . Although t h e s e d i f f i c u l t i e s were s a i d t c be the r e s u l t of f i n a n c i n g long-term r e quirements through s h o r t - t e r m c r e d i t s a n d should n o t be taken as signs of g e n e r a l economic t r o u b l e s i n Germany, the stock market r e a c t e d nervously t o the news. There were r e p o r t s of f a i r l y heavy s e l l i n g 5 e s p e c i a l l y by f o r e i g n e r s 0 However3 i t appears t h a t confidence i n the o v e r a l l German economy was maintained, s i n c e t h e s t r e n g t h e n i n g of the exchange r a t e f o r t h e DM a p p a r e n t l y i n d i c a t e s t h a t t h e funds r e a l i z e d i n the s t o c k s a l e s have remained i n Germany. The F»A,Zo s t o c k index d e c l i n e d by 5 >5 per c e n t between September 9 (1963 h i g h ) and October 25c (See Table U-) I t recovered somewhat s u b s e q u e n t l y , but turned down again as t h e B r i t i s h p r e s s r e p o r t e d t h a t the Krupp concern might be i n l i q u i d i t y d i f f i c u l t i e s because long-term c r e d i t s to customers were f i n a n c e d by s h o r t - t e r m borrowings» A Krupp spokesman has s t a t e d t h a t the f i r m ' s c r e d i t l i n e s with t h e "Big Three" German banks a r e f a r from exhausted and the p r e s i d e n t of one of t h e banks, the Deutsche Bank, has supported t h i s statement» Table U, A l l time h i g h : 1962 high! 1962 lows 1963 May June July Aug, 31 28 26 2 9 16 23 30 Aug, Jan. Oct, Germany? Stock Index, March-September 1963 [December~31? 1958 = 1 0 0 ) 31, 1960 2 10 261*e60 222,81 132,88 1963 h i g h : 1963 lows Sept, 181,63 178.96 181.90 181.90 181* ,U0 Oct, 188.86 190. hh 191.10 6 13 20 27 h 11 18 25 31 Sept* 9 Feb, 26 19k.81 l5l»5U 191.02 192.28 193.51 191.89 192.39 190,26 189.58 • 18U.10 186.05 c Source = F r a n k f u r t e r Allgemeine Zeitungr Foreign t r a d e , In September, e x p o r t s f e l l below the very high August f i g u r e and were f r a c t i o n a l l y below the July l e v e l „ (See Table 5>) On the o t h e r hand, imports r o s e a p p r e c i a b l y i n September a f t e r f a l l i n g o f f the month b e f o r e » Consequently, t h e t r a d e s u r p l u s was much reduced from t h e high August l e v e l . However, a s u b s t a n t i a l p a r t of the r i s e i n imports i n September p r o b a b l y r e f l e c t e d d e l i v e r i e s of p r e - p a i d m i l i t a r y goods 9 f o r which t h e r e i s OFFICIAL USE ONLY OFFICIAL USE ONLY - 6 - an o f f s e t i n the balance of payments i n the s h o r t - t e r m government c a p i t a l account 9 l e a v i n g r e s e r v e s u n a f f e c t e d . Table 5° Germany: Foreign Trade ( s e a s o n a l l y a d j u s t e d 3 monthly averages or month in b i l l i o n s of DM) Exports 1962 y 1 II III iv . 1.36 UoiiU L.L5 L.39 Imports a/ y Trade Balance a/ a/ It.16 l|o05 L.19 It. 20 .20 "39 ,26 .19 1963 1 11 HI July AugustSeptember ii.37 u.83 14,97 U,9ti 5,06 U.92 U 5 Lw3U a,52 h*5k L.37 L.65 ' .22 .19 «Uo .69 .27 a / . Change i n import accounting procedure r a i s e d f i r s t q u a r t e r and A p r i l 1962 imports by a t o t a l of approximately DM.O.U b i l l i o n , Source ° Deutsche Bundesbank Monthly Report«' Compared with the preceding year 5 September e x p o r t s were up 11 „ 3 per c e n t s which was about as l a r g e a y e a r - t c - y e a r i n c r e a s e as i n August s and l a r g e r than in J u l y , Imports r o s e 11,5) per cent over the y e a r s but a f t e r e x c l u s i o n of government purchases of m i l i t a r y goods and adjustment f o r a s t a t i s t i c a l change i n import accounting i n 1962, they were up only 2 , 5 per c e n t . This would i n d i c a t e t h a t the t r a d e b a l a n c e on commercial goods improved a p p r e c i a b l y over t h e y e a r 0 Balance of payments i n s u b s t a n t i a l s u r p l u s , Heavy p r i v a t e c a p i t a l " i n f l o w s were the main f a c t o r i n t h e s h i f t o f " t h e German balance of payments from a s u b s t a n t i a l d e f i c i t p o s i t i o n i n 1962 back t o a c o n t i n u i n g l a r g e s u r p l u s p o s i t i o n t h i s y e a r . While the s u r p l u s v i r t u a l l y disappeared i n J u l y , owing t o s u b s t a n t i a l s h o r t - t e r m p r i v a t e c a p i t a l e x p o r t s and h e a v i e r o f f i c i a l payments abroad 5 i t re-emerged i n August^ when s h o r t - t e r m c a p i t a l flows were r e v e r s e d and the t r a d e s u r p l u s i n c r e a s e d f u r t h e r . I n d i c a t i o n s a r e t h a t cont i n u e d s u b s t a n t i a l s u r p l u s e s were r e g i s t e r e d i n September and October, For t h e f i r s t e i g h t months of 1963 the cumulative balance of p a y ments s u r p l u s amounted t o DM 2,778 million., as compared with a DM 223 m i l l i o n d e f i c i t f o r the corresponding p e r i o d of 1962. (See Table 6 . ) Large i n c r e a s e s i n t h e t r a d e balance more t h a n o f f s e t the continued growth of the d e f i c i t on s e r v i c e account and produced a DM 0«5 b i l l i o n improvement i n the goods and s e r v i c e s balance„ But the major improvement came in t h e p r i v a t e c a p i t a l b a l a n c e 9 which r o s e by c l o s e t o DM 1 . 5 b i l l i o n , Most of t h e p r i v a t e c a p i t a l i n f l o w was c o n c e n t r a t e d in the a c q u i s i t i o n of German s e c u r i t i e s , e s p e c i a l l y o n g - t e r m bonds„ Digitized for lFRASER OFFICIAL USE ONLY http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis OFFICIAL USE ONLY Table 6 . Germany: - 7 Balance of Payments 1962-August 1963 ( i n m i l l i o n s of'DM) 1 9 1962 1, 2, 3, GOODS & SERVICES Trade balance Services Total OFFICIAL PAYMENTS Donations Long-term c a p i t a l , S h o r t - t e r m c a p i t a l —' Total PRIVATE CAPITAL Securities transactions Foreign purchases 2 / German purchases (increase-) 3/ Other l o n g - t e r m " S h o r t - t e r m U/ E r r o r s and omissions Total SURPLUS OR DEFICIT ( - ) - ' 1,915 -668 17277 -2 SU5U -567 -597 -3.616 II 2,818 -1,056 1,76$ 5UU 81 1,268 -U7U "~79E Uio -323 -3U0 "H7 2^ -2sunr -376 260 -?,930 -931 -96 ' -911 -256 -256 -62 -U7 -is: -316 38 -32 -310 2L5 1U3 U22 202 757 713 219 -369 700 673 2,083 -161 205 -121 1,556 -233 6 3 I 1963 78 183 120 -1,0U7 JU1£ AUg „ 596 730 V -U8 f ' 269V 513 950 3,516 1,005 1,195 -265 /299 279 2,778 822 MU2 1 21Q 266 a / Preliminary. b / A change i n import accounting procedure has r e s u l t e d i n approximately DM U00 m i l l i o n of goods i n bonded warehouses being included i n the f i r s t k months imports» This i s o f f s e t i n e r r o r s and o m i s s i o n s . 1 / S h o r t - t e r m c a p i t a l i n f l o w w i l l not agree w i t h Bundesbank f i g u r e s , a f t e r adjustment f o r d i f f e r e n c e s i n d e f i n i t i o n , because of t h e apparent omission of a DM 20 m i l l i o n IMF t r a n s a c t i o n from the Bundesbank d a t a i n June* 2/ Foreign purchases of German s e c u r i t i e s „ 3 / German purchases of f o r e i g n s e c u r i t i e s . %/ Includes commercial bank c a p i t a l other t h a n f o r e i g n exchange a s s e t s . Sources Basic d a t a from Bundesbank and I n t e r n a t i o n a l F i n a n c i a l S t a t i s t i c s ^ r e a r r a n g e d by a u t h o r . OFFICIAL USE ONLY OFFICIAL USE ONLY German r e s e r v e s i n c r e a s i n g . With t h e r i s i n g balance of payments s u r p l u s (approximately §695 m i l l i o n f o r t h e f i r s t e i g h t months of 1963) t h e Bundesbank's holdings of gold and f o r e i g n exchange i n c r e a s e d by $358 m i l l i o n between the end of 1962 and August 1963, by a f u r t h e r $65 m i l l i o n in.September and by an estimated $8 m i l l i o n i n October» (See Table 7») The October i n c r e a s e was small only because, i n a d d i t i o n t o s u b s t a n t i a l Government p r e payments f o r m i l i t a r y p u r c h a s e s , the K r e d i t a n s t a l t f u e r Wiederaufbau (Rec o n s t r u c t i o n Loan C o r p o r a t i o n ) , which f l o a t e d a loan i n the same month, i n vested $58 m i l l i o n i n U.S. Treasury b i l l s . Furthermore, with the g e n e r a l l y e a s i e r money market i n October, commercial banks did not f i n d i t n e c e s s a r y t o s e l l f o r e i g n exchange which they r e c e i v e d t o t h e C e n t r a l Bank, but according t o market r e p o r t s , employed p a r t . o f t h e s e funds abroad„ Table 7« Germany: Changes i n Reserves P o s i t i o n 1962October 1963 ( i n m i l l i o n s of U.S. d o l l a r s ) Deco-Sept. 1962 1#3 A. Bundesbank gold and f o r e i g n exchange Gold Foreign exchange Total Be Co Drawing r i g h t s on IMF Commercial banks ' " ^ f o r e i g n exchange T o t a l A through C 82 I II 19 6 3 Sept. Oct, -72 M 69 -70 5 2U8 _32~ 65 _8 -68 U23 - 1 253 39 65 8 -102 27 2 — 13 12 125 b / 302 223 767 22L h 118 309 170 a7 E s t i m a t e d . b / January-August only S o u r c e I M F , I n t e r n a t i o n a l F i n a n c i a l S t a t i s t i c s ; Bundesbank, Monthly R e p o r t . Through August, t h e l a t e s t month f o r which d a t a a r e a v a i l a b l e , commercial banks i n c r e a s e d t h e i r f o r e i g n exchange holdings by $302 m i l l i o n , but most of t h i s was c o n c e n t r a t e d e a r l y in the year when banks where unwinding year-end window-dressing o p e r a t i o n s 6 A c t u a l l y , not a l l the funds r e p a t r i a t e d then were put abroad a g a i n . Consequently, t o t a l f o r e i g n exchange h o l d i n g s of commercial banks, amounting t o $9U3 m i l l i o n a t the end of August, were about $70 m i l l i o n below t h e i r August 1962 l e v e l . The f a c t t h a t banks were not adding t o t h e i r f o r e i g n h o l d i n g s , d e s p i t e t h e c o n t i n u a l l y i n c r e a s i n g t r a d e s u r p l u s , i s one i n d i c a t i o n of the r e l a t i v e l y t i g h t e r domestic c r e d i t s i t u a t i o n . OFFICIAL USE ONLY OFFICIAL USE ONLY Foreign exchange markets» Quotations f o r the DM i n f o r e i g n exchange markets have r i s e n since e a r l y August and by November 6, a t 25.1U9 UeS„ c e n t s , had reached the highest r a t e since June 1961, (See Table 8») The s t r e n g t h of the DM r e f l e c t s the f a v o r a b l e German e x t e r n a l p o s i t i o n and the confidence f o r e i g n e r s have in the underlying h e a l t h of the German economy, which has e v i d e n t l y not been s e r i o u s l y shaken by the r e c e n t l y reported i n s o l v e n c i e s of the Stinnes concerns and the subsequent rumors about f i n a n c i a l d i f f i c u l t i e s of the Krupp f i r m . .Germany: Table Exchange Rate i n U.S. Gents per DM (noon buying r a t e s ) ' Par value Upper l i m i t Lower l i m i t August 2 9 16 23 30 September 6 13 20 27 Source: 25,000 25.188 2L»8?5 25.091 25.100 25,101 25.111 25.118 October November 25-121 25.122 25.128 u 11 18 25 1 6 25.138 25.132 25.138 25.113 25.H5 25.lit9 25.12k Federal Reserve Board = By e a r l y October the s u b s t a n t i a l forward premium on the t h r e e months TIM was replaced by a small d i s c o u n t , since funds covered f o r t h a t period would extend i n t o the new y e a r . Commercial banks, h a b i t u a l l y , r e p a t r i a t e balances held abroad f o r window-dressing purposes a t year-end and r e t u r n these funds again in January. This leads t o demand f o r the DM up t o the end of the year and s a l e s of DM i n January, bringing about the d i s count on the three-months DM in October, European and B r i t i s h Commonwealth Section» OFFICIAL USE ONLY f Table 9 0 Germanyg 3-mo. E u r o dollar deposits London 1962-Sept. Oct, Nov, Dec 0 2y63-Jan* Feb. Mar. Apr e May •June July Aug, Sept. 28 26 30 28 S e l e c t e d Money Market Y i e l d s and. Exchange Rates (per cent per annum) 3-mo. i n t e r - Spread bank l o a n s in favor Frankfurt London 3.81 a.13 3,9k U.13 3,19 14,50 L,2< IwLU +0,62 -0,37 -0.31 -0.31 3 - m o , , U.S. $ i n t o Marks Comm. bank - \ ! Market +0.50 +0.50 +o<>5o +0,50 - 10 - 3-mo. T r e a s • b i l l s +0.5 +0.8 +0,2 +0-5 U.K. Ger. U.S. 3.56 3.78 3.63 3*66 2.50 2.63 2.63 2.63 2.76 2.7U 2.86 2.98 25 2.63 +0,3 +0,75 3-Ul 2,93 +0o3U 3.2$ 3.59 22 2,87 +0.06 2.63 0.0 3oUli +0,75 3.38 3.3k 29 +0,1 2.92 3=63 +0,06 2,63 3,66 3.69 +0,75 2'6 2.89 +0,22 2,63 3,72 0,0 +0.75 3,76 3,50 31 3.00 2.63 +0,75 3,61 3;% 3.69 0,25 -0,3 28 3,64 2.63 2.99 3,88 -O.Oli +0,75 3.63 -0-3 26 +0.1 h.00 3.20 +0.12 2 , 6 3 3*88 +0,75 3.69 +0." 3,6? 30 a.oo 2,63 3.18 +0,2$ +0,75 3.73 6 +-3.38 U.19 +0.5 3.62 2.63 3.32 3.81 o.75 13 TO.j'O +oM L.09 2.63 3,62 3.3k +0.75 3*69 20 it* 06 +0,2 +0,31 3,62 2.63 +0.75 3.38 3.75 97 a.09 -0,2 2.63 +0,75 3.3U 3.5k 3-:7) Oct, u L.25 2.63 -0.81 +0.75 3.12 -.,0o 3.L8 -0.3 11 Lu06 -0,1 2.63 -1.06 +0.75 3,18 3,12 18 Lwl2 -;,oo +0.75 -0.2 2,63 3,61 3.17 5,12 25 U.12 2.63 -0.2 3,61 +0,75 3.U3 -1.13 5f25 Nov c 1 2.6.3 .. ,3 J i £ h-,12 +0,75 3o6.3 .. n - a -0-? rird.j a / S p e c i a l swap r a t e p r o v i d e d by Bundesbank t o d o m e s t i c commercial banks f o r 2 - 6 month p e r i o d , T a b l e 1 0 , Germanys Comm. ll 1962 - J u n e 7.50 July 7.50 August 7,50 September 7,50 October 7,50 November 7.50 . December 7.50 1963 - J a n u a r y 7.50 February 7.50 March 7.50 April 7.50 May 7.50 June 7.50 July 7,50 August 7.50 ""September 7,50 October 7,50 a 7 Approved c r e d i t s on S e l e c t e d Loan s D e p o s i t and S e c u r i t y Rates (per cent per annum) 6 - 1 2 mo. d e p o s i t s Savings Time 3.50 2.75 3.50 2.75 3,50 2,75 3,50 2.75 3.50 2,75 3.50 2,75 3.50 2.75 3.50 2,75 3.50 2,75 3.50 2.75 3,50 2.75 3.50 2.75 JU50 2.75 3.50 2,75 3'50 2,75 3,50 2,75 2.75 3,50 current account. Bond y i e l d s Public Railway a u t h o r 1958-83 i t i e s i-i/rt 5.77 5,77 5.83 5.92 6.0k 6,lU 6.08 5.99 5,99 5.99 5.97 6,00 ^,03 6,10 6,09 6.09 6:07 5.9 5,9 6.0 6,0 6,2 6.2 6d 6,0 6d0 6.0 6.0 6.1 6,1 6.1 6,1 n,&- Share Yields 3.L9 3,71 3.58 3.79 3.89 3.3U . - 3.UU 3.58 3.75 3.63 3.56 3.19 3.26 3.20 3,09 n.a, n,a5 Yield fiaP 2.3 2*1 2.2 2.1 2.1 2.8 2.7 2.U 2.2 2.U 2.U 2.9 2.8 2.9 3=0 n.a. Tlran w INTERNATIONAL MONEY 3-MONTH EURO-DOLLAR MARKET YIELDS FOR DEPOSIT VS. U.S. U.S. DOLLAR I N V E S T O R S CERTIFICATE OF DEPOSIT YIELDS D I F F E R E N T I A L : EU R O - D O L L A R O V E R U . S . C E R T I F I C A TE O F D E P O S I T — - — 1 NEW 1 1 1 1 YORK OFFER RATES 1 1 ON 1 1 1 SELECTED 3 - M O N T H T R E A S U R Y BILLS - F u l l y 1 1 1 1 i r INVESTMENTS Hedged — — — — CANADA 4 ^ — US- - V — | COMMERCIAL P A P E R j- F u l l y Hedged U.K. HIRE P U B C H A S E DEPOSIT 1 CANADIAN F I N A N C E C O M P A N Y ^ — .S.FINANCE COMPANY 1 1 Mar. 1 1 1 1 I I 1 Dec. 1963 1 Mar. 1 1 (Tir; " M 1 1 ~uiT. I 1 " Dec. .Chorj_2_ INTEREST ARBITRAGE, UNITED STATES S CAN AD A T h u r s d a y fig i !3 - M O NTH T R E A SURY B IIL RATES, CANADA UNITED STATES; RATE D I F F E R E N T I A L A N D . F f o & W ^ R P C A N A D I A N D O L L A R F O R W A R D BATE \ r~ K Id I n t V v ( R A l E D I F F E R S N T I A I . W I T H F O I R W A R !D EX C H A N I G E C O V E F t j u Atot /A N _,LJ_ T ..Li.J J 1 _l J - .1 1 $ D T EJ/INCI•NTIVE 1 1 1 1 1 :T T 1 L . 1 1 T fK — e or ciINADA4 T 1 1 1 1 1 1 1 1 1 1 1 1 1 1 T T T 'T m ,T T INTEREST ARBITRAGE, N E W YORK/LONDON P1 Friday figure: 3-MONTH TREASURY V I BILL R A T E S LONDON RATE D I F F E R E N T I A L A N D 3-MONTH FORWARD STERLIj4G IT' FORWARD RATI 1 1 1 L L 1 1 L L— R A 1 E D I F F E R E N T I A I L W I T H F O R W A P ID EX C H A N I G E C O V E F i - < A Tnfa V O R OF I n I a VOR OF 1 1 1 I I | I | I960 | | 1 1 i 1961 1 L 1 1 1 1 1 1 1962 1 1 1 1 1 1 1 1 1963 1 L - L L . INTEREST A R B I T R A G E FOR G E R M A N COMMERCIAL BANKS Frldoy figures 3-MONTH P«r cent p«r a n n u m TREASURY -EURO-DOLLAR BILLS, INTERBANK DEPOSIT LENDING RATES RATE A N D j GERMAN INTERBANK RATE D I F F E R E N T I A L A N D FORWARD DEUTSCHE MARK DISCOUNT ( — ) v x / - / RATE D I F F E R E N T I A L W I T H ' F O R W A R D - r v , i EXCHANGE IN F A V O t Of f S A N K f U I T ( + ) ' x x l * T E I I A N * L O A N RATE COVER SHORT-TERM INTEREST RATES * ,2-ihuBQ.DOUAK • 10MD0N-V — CANADA f 1961 "X" 3-monlh treasury bill roles lor oil counlriei except iopon i and Switzerland (3 month deposit role) ; ( Average rote on bonk loom ond discounts) • *j" 3-monlh role for U S dollar depoiili in London I LONG-TERM BOND YIELDS 7 7A7 w 1 1 JJJ \ j r U INDUSTRIAL STOCK INDICES Ratio Corporolion indutlnol ilock indei Jopan: index ol 225 induilrial and olher ilocki traded tcoI« ; I* SPOT E X C H A N G E RATES - M A J O R CURRENCIES A G A I N S T U.S. DOLLAR Per t „„, Abov pgr —v/ < - / Above pgr Above par BELGIAN f B A N C J F MAM O 1961 N D 7 FM A *M J J 1962 A S 0 N DJ F M A M J J 1963 A S O N D 3-MONTH AGAINST FORWARD E X C H A N G E RATE U. S. D O L L A R S ~ SWISS FRANC ^ - | f AGAINST POUND STERLING —j— POUND STEIIING - LONDON PREMIUM + * •A G A I N S T POUND STERLING - LONDON PREMIUM + 1961
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