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BOARD O F O O V B R N O M H. 13 i No. 82 | j FSDIvZOF * '3% October 2 6 , 1962 ;=.;-i?5ERVE B A N K R i g i i M Q i y CAPITAL MARKET DEVELOPMENTS ABROAD I . Germany I I . Nine Charts on F i n a n c i a l Markets Abroad I . Germanys Money and Capital Markets i n September Money and c a p i t a l markets were u n s e t t l e d i n Germany during September and e a r l y October. The stock market was p a r t i c u l a r l y weak and p r i c e s of i n d u s t r i a l shares were s h a r p l y lower f o l l o w i n g a mid-October shakeo u t . Bond y i e l d s continued to advance. On October 9} Dr. Adenauer announced a t h r e e - p o i n t economic program t o combat i n f l a t i o n and t o s t r e n g t h e n Germany's c o m p e t i t i v e p o s i t i o n i n world t r a d e . Money market r a t e s r o s e i n September from a range of 2 - 7 / 8 t o 3 per c e n t to a range of 3 t o 3 - 1 A per c e n t . Conditions i n the money market t i g h t e n e d a s a r e s u l t of the September t a x d a t e . The Bundesbank a l s o took s t e p s t o discourage s h o r t - t e r m c a p i t a l exports by the commercial banks on investments maturing during December. To t h i s end, on October 2 , the Bank r a i s e d by 1 / 8 of 1 per c e n t the r a t e s on 90-day Treasury b i l l s and other money market paper • The Bank a l s o decided n o t to e n t e r i n t o swap exchange engagements f o r U»S. d o l l a r s maturing during t h e month of December. These s t e p s w i l l reduce the s h i f t s of funds by the commercial banks f o r year-end window-dressing and, t o t h a t e x t e n t , add t o the current a v a i l a b i l i t y of funds on domestic f i n a n c i a l markets. On the bond market, p r i c e s continued t o d e c l i n e during September and the long-term market y i e l d exceeded 6 per c e n t f o r the f i r s t time s i n c e e a r l y 1961. Prime market names have found i t d i f f i c u l t t o p l a c e l o a n s a t a 6 per cent r a t e even l / k of a p o i n t below p a r . The weak s t a t e of the market l e d the monetary a u t h o r i t i e s t o postpone the tranche of t h e Federal loan scheduled f o r e a r l y October. The l o a n i s expected t o be o f f e r e d t o the market, a t the end of October on r e v i s e d terms t o make the s e c u r i t i e s more a t t r a c t i v e . German i n d u s t r i a l i s t s are reported to be concerned about their'' c o n t r a c t i n g sources of l i q u i d i t y . With reduced p r o f i t s , i n t e r n a l r e s o u r c e s are e s t i m a t e d to be able t o f i n a n c e 5>6 per cent of investment spending i n 1962 compared w i t h 62 per cent i n 1961 and 72 per c e n t i n i 9 6 0 . At the same t i m e , . the banks are no longer providing accommodations a s f r e e l y as i n the r e c e n t p a s t while the p r o s p e c t s of r a i s i n g funds on t h e c a p i t a l market, and e s p e c i a l l y by s a l e s of shares, have not been encouraging i n the p a s t few months. The B e r l i n Economic I n s t i t u t e a t t r i b u t e s the t i g h t c o n d i t i o n s on the c a p i t a l market t o t h r e e f a c t o r s : ( a ) the a d d i t i o n s t o l i q u i d i t y due t o the f o r e i g n exchange i n f l o w have been balanced by withdrawals of l i q u i d i t y by t h e p u b l i c sector5 (b) the banks have found the r a t i o of t h e i r l i q u i d a s s e t s t o d e p o s i t s . OFFICIAL USE ONLY DECONTROLLED AFTER SIX MONTHS OFFICIAL USE ONLY reduced from 10oil per cent in September 1961 to 8<>5 per cent i n June 1962 and the central bank has not taken steps to ease t h i s p o s i t i o n ; and (c) i n d u s t r i a l firms appear to have s h i f t e d from short-term to longer-term c r e d i t s since 1960« On October 11 5 a f t e r d r i f t i n g slowly downward almost continuously since mid-August 5 German stcck. p r i c e s broke sharply« On that day, the i n d u s t r i a l stock index f e l l from 139 to 1.35 on a heavy turnover„ Trading was reported to be l i m i t e d to p r o f e s s i o n a l s 0 But the index f e l l further on October 12 under the Impact of sustained s e l l i n g by frightened s m a l l - s c a l e private investorso Between October 16 and.19 s the market r a l l i e d a f t e r one of the German banks had made arrangements t o finance a Bremen merchant and<, thereby, kept a large block of p r i v a t e l y-held shares from being sold on the market* - During the period under review,, the Federal Government took further steps to reduce, i n f l a t i o n a r y pressureso The Federal budget f o r 1963 was d r a s t i c a l l y cut- back to DM 5608 b i l l i o n from an estimated DM 62 b i l l i o n previously being consideredo Under t h i s budget,, DM 200 m i l l i o n has been a l l o c a t e d to the housing program compared with DM 290 m i l l i o n i n 1962 0 In the second p l a c e s Chancellor Adenauer announced on October 9 to the Bundestag i n a formal.policy statement the Cabinet's economic proposals to bring demand pressures under control. 0 The p r i n c i p a l measures included? .~ a 0 The building boom i s to be restrained by suspending for two years f a c i l i t i e s f o r writing o f f the c o s t of new housing (except for owneroccupied dwellings) and Government subsidies are to be cut back, bQ A n t i - c a r t e l l e g i s l a t i o n i s t o be tightened up_ and other steps taken t o encourage reductions i n r e t a i l p r i c e s ; and Employers and brokers were asked to reach "sensible" c o l l e c t i v e bargaining agreements. Money market <, The money market was r e l a t i v e l y easy during the f i r s t half of September| c a l l r a t e s ranged between 2-7/8 and 3 per cento (See Table 1») ' Rates for c a l l money rose to 3~ 3 - l / U per cent i n the l a s t half of the montho r e f l e c t i n g a tightening of l i q u i d i t y which stemmed from additions by commercial banks t o t h e i r balances a t the Bundesbank0 The money market remained r e l a t i v e l y rign< through the f i r s t three weeks in Octobero There i s heavy demand for money maturing in December; the December inter-bank loan rate now stands at U - L-1/2 per cent 0 Treasury mobilization of the Laender contribution to the 1962 budget and the r e l e a s e of the f i n a l tranche of the "Blessing Billion" are expected tc- ease l i q u i d i t y somewhat toward the end of October and i n November» OFFICIAL USE ONLY OFFICIAL USE ONLY Table 1. ~~ - 3 - Money Market Rates in Frankfurt 9 August and September ~ (in per cent per annum) Day-to-day money Aug® 1-7 8-lf) 16-23 2U-31 Sept. 3-7 10—lU 17-21 2 It—28 Three-month loans 3-3/8 3-1/8 3-3/8 3-3/8 3-1/8 3-l/U 3-1/8 3—1/8 2-5/8 - 3 2-3/8 - 2-5/8 2-3/8 - 3 2-2-7/8 2-7/8 - 3 2-7/8 " 3-1/8 3 - 3-lA 3 - 3—1A - 3-1A - 3-l/U - 3-lA - 3-l/U — 3-l/U On October 2nd the Bundesbank increased Treasury b i l l rates by l / 8 of 1 per cent s thereby raising the rate on three-month b i l l s t o 2-5/8 per cent, (see Chart 3) and announced i t would not enter into swap engagements maturing i n December. This action appears to be an attempt to keep funds i n Germany u n t i l the end of the year and thus to give support to the bond market and to avoid large-scale window-dressing operations i n December. Bond marketo Total gross bond placements in August amounted t o DM 971 million» (See Table 2 . ) The bond market remained weak and lethargic during September and most of October. According t o preliminary Bundesbank data, gross bond placements i n September totaled only DM 817 m i l l i o n and gross stock placements only DM UU m i l l i o n . Since mid-September a number of good market names have experienced d i f f i c u l t i e s i n placing 6 per cent i s s u e s even at 99-3A par. Bond prices continued to d r i f t downward i n September, bringing the long-term i n t e r e s t rate above 6 per cent f o r the f i r s t time since early 196I. (See Chart 6 and Table 6 . ) Investors held back i n September i n expectation of higher i n t e r e s t r a t e s . Table 2 . Gross Placements i n German Security Markets (in millions~of DM^ monthly or monthly average) I "Occasional" borrowers' bondss Industrial Public authority Foreign i s s u e r s Other bonds a / 39 Wa Total occasional borrowers' bonds Mortgage and communal bonds Total gross bond placements b/ 1961 II III IV 1962 June i n k I Aug. 112 72 31U 136 *>«• 32 132 J9 78 20 258 638 25 360 101 —— 50 8U 79 — h 117 _53 _8U 109 157 _56 581 211 5U7 3U0 207 ^53 UO. UUO 6uo w Tm 530 m 16 78 526 525 1*107 735 liil 213 L6U 503 715 665 U53 l , 2 I S 793 —— Gross share placements 185 205 6k 312 lltf , 35U 263 352 130 Total security placements l s U 6 l 999 957 8U6 711 2/105 V 1 9 1,397 998 at issue value a / Mostly bonds of specialized credit "ins t i tut ions , e s p e c i a l l y i n 1961. [5/ Includes medium-term notes (Kassenobligationen). OFFICIAL USE ONLY OFFICIAL USE ONLY - it. - The weak condition of the bond market forced postponement of the Federal loan scheduled for e a r l y October» The terms of the i s s u e were r e v i s e d i the s i z e of the tranche was reduced from DM 300 m i l l i o n t o DM 250 m i l l i o n and the time to maturity i s now 10 years rather than the usual 15 or 20„ The Government has waived i t s r i g h t to terminate or convert the loan and the i s s u e w i l l be non-redeemable for the e n t i r e span to maturity. The investor thereby r e c e i v e s a guarantee of receiving 6 per cent i n t e r e s t per annum f o r the e n t i r e l i f e of the loan* The i n a b i l i t y of the bond market to s a t i s f y the needs of the economy f o r long-term financing has produced an i n c r e a s i n g l y l i v e l y i n t e r e s t i n Kassenobligationen 9 medium-term notes issued by banks and other borrowers f o r periods from 3 to 5 years 0 According to Bundesbank data, DM $1$ m i l l i o n of such medium-term notes were negotiated i n the f i r s t half of 1962 alone as compared to a t o t a l of DM 389 for a l l of 1961» Stock marketo On October 11th the German stock market f e l l 3 per cent i n one day of trading to a postwar low of 135o (See Chart 7») At 135 the stock index stood U0 per cent below i t s l e v e l a t the beginning of the year and 50 per cent below the index peak of 26U r e g i s t e r e d i n August 1960» Investors continue to f e e l that there w i l l be continued pressure on p r o f i t s from increased f o r e i g n competition,, from r i s i n g wage c o s t s and from the -three-point economic s t a b i l i z a t i o n program passed on October 9 t h . On October 11th a number of large firms were forced to s e l l large blocks of s e c u r i t i e s „ Some c r e d i t o r s 9 including commercial banks 9 thereupon began to s e l l s e c u r i t i e s t h s y had been holding as backing f o r loans „ By s e l l i n g while some p r o f i t could s t i l l be realized,, the banks were trying t o cover the l o s s e s they had already s u f f e r e d . Foreign investors were a l s o big s e l l e r s „ The general public^ although not a p a r t i c i p a n t i n the October U t h s e l l i n g wave s entered the market as a l a r g e - s c a l e s e l l e r on the 12th Q By October 12th 5 the stock index had reached the low of 133c Prices had r i s e n 7 per cent by October 19 but the market remained weak and uneasy. Action by the Dresdener Bank, i n buying large blocks of shares from a well-known Bremen timber merchant helped to eliminate one p o s s i b l e source of s e l l i n g which had added to market uncertainty 0 The merchant reportedly used the cash t o cover c r e d i t s due to other banks» This particular deal had been discussed i n May but the bank found the o f f e r price a t that time too high. Federal budget f o r 1963o The increase i n the Federal budget f o r 1963 has been t i e d to an estimated r e a l increase i n the gross national product of 3.5 per c e n t . The volume of the budget was held to DM 56.8 b i l l i o n 0 This represents a d r a s t i c cut—back in siz-e from the o r i g i n a l l y proposed DM 62 b i l l i o n . The budget i s t o be financed by expected t a x r e c e i p t s of DM 52 °8 b i l l i o n , loan f l o t a t i o n s i n the order of DM 1 0 8 b i l l i o n and Laender contributions t o t a l i n g DM 2 b i l l i o n o This last,, however, i s double the s i z e of the Laender contribution i n 1962 and so f a r the Laender have refused a l l demands to increase further the modest supplementary sum f i n a l l y obtained from them i n 1962 by the Federal Government-c In the l i g h t of t h i s f a c t and the current weakness of the bond market s i t appears Very uncertain whether or not Minister of Finance Starke can keep h i s promise of no tax increases i n 1963= OFFICIAL USE ONLY OFFICIAL USE ONLY - 5 - Recent price trends. The most notable increase i n c o s t s i n the German economy has been i n the wage s e c t o r . Hourly wage r a t e s i n manufacturing rose by 7 per cent between the end of I960 and 1961 and by a further 5 per cent by the end of June 1962„ (See Table 3 . ) During t h i s period, r e t a i l p r i c e s have increased by 6 per cent but wholesale p r i c e s have remained remarkably s t a b l e , with only a 2 per cent r i s e recorded. I t would appear that producers 1 p r o f i t margins have absorbed a great part of the wage i n c r e a s e s . The export price (unit value) index has not changed since the fourth quarter of 1961 but the c o s t to f o r e i g n e r s of German exports was raised by 5 per cent as a r e s u l t of the exchange revaluation i n March 1961. Table 3. I960 Industrial production Hourly wages i n manufacturing Consumer p r i c e s Wholesale p r i c e s Export p r i c e s Sources OECD Selected Price Indices f o r Germany 1953 = 100 E n d-of-P e r i o d 1961 IV III II I I II 1962 June July 186 191 190 188 192 195 199 198 196 151 112.0 10U.2 101 152 113.0 10U.8 100 153 llU.l I0iw7 101 161 llU.9 10U.9 101 163 115.3 105.3 102 169 117.0 105.7 102 172 118.9 106.1 102 173 119.5 106.2 102 120.0 106.2 102 Aug. 118.2 106.2 Foreign aid f i n a n c i n g . In a statement on September 27, Minister f o r Economic Cooperation Scheel s t a t e d that i n the future 1 per cent of Germany1 s GNP would be s e t aside f o r a s s i s t a n c e to underdeveloped c o u n t r i e s . For 1961, German aid t o t a l e d DM 30 b i l l i o n of which DM 2 . 1 b i l l i o n came from p u b l i c sources. However, he stated that Germany could not provide additional aid funds out of the budget and that the World Bank would have to undertake "much financing" on the c a p i t a l market. He indicated that the Federal Republic might f i n d i t necessary to require that aid r e c i p i e n t s spend part of t h e i r money i n West Germany. On September 20, a consortium of German banks, headed by the Deutsche Girozentrale, granted a DM 80 m i l l i o n c r e d i t to Egypt to pay f o r goods and s e r v i c e s from Germany. The c r e d i t i s guaranteed by the Federal Government and i s the German share of a World Bank financing program. In addition, DM 20 m i l l i o n was granted as development aid t o finance a r i v e r f l e e t to transport iron ore from Aswan t o the HeIvan S t e e l M i l l s . On October 21, i t was announced that Spain would r e c e i v e a DM 200 m i l l i o n c r e d i t from the Reconstruction Loan Corporation to finance i r r i g a t i o n p r o j e c t s . The loan i s at. 3 - l / U per cent i n t e r e s t and i s repayable over 15 years beginning on December 31 5 1967• OFFICIAL USE ONLY OFFICIAL USE ONLY • - b ~ R e s t r i c t i o n s have been p l a c e d by t h e German government- on g u a r a n t e e s of p r i v a t e c r e d i t s t c B r a z i l 0 The p r i v a t e c r e d i t o r s 2 s h a r e of t h e r i s k has been i n c r e a s e d from 10 t o 25 p e r cent 0 As a r e s u l t * t h e p r e s s e x p e c t s t h a t p r i v a t e i n v e s t m e n t i n B r a z i l will, d r o p s h a r p l y o The u n s u c c e s s f u l a t t e m p t s by a German o f f i c i a l d e l e g a t i o n l a s t s p r i n g t o a g r e e on t h e e x t e n s i o n of DM 2$0 m i l l i o n i n development a i d t o B r a z i l and r e c e n t s t e p s t a k e n by t h e B r a z i l i a n government ( r e s t r i c t i n g t h e t r a n s f e r of p r o f i t s t c 10 p e r c e n t and t h e f i x i n g of the v a l u a t i o n , cf f u t u r e r a p i t a l i n v e s t m e n t a t t h e v a l u e of t h e e r u z i e r o a t t h e ..time of t h e i n v e s t m e n t ) c o n t r i b u t e d t c t h e d e c i s i o n t o r e d u c e Government g u a r a n t e e s cf p r i v a t e c r e d i t s » F o r e i g n t r a d e o Trade r e s u l t s f o r J u l y and August were v e r y d i s a p p o i n t i n g » Even though a g r i c u l t u r a l i m p o r t s began t c d e c l i n e a s e x p e c t e d 9 the y e a r - t o - y e a r growth of t o t a l i m p o r t s remained h i g h ( 1 1 p e r c e n t i n J u l y and lli p e r c e n t i n August)» A p o s s i b l e c o n t r i b u t i n g f a c t o r was the J u l y 1 s t r e d u c t i o n of t a r i f f s w i t h i n the Common Market 0 S e a s o n a l l y - a d j u s t e d e x p o r t s d e c l i n e d i n J u l y by h p e r c e n t b u t r o s e 2 per c e n t i n August on a y e a r - t o - y e a r b a s i s o (See Table U») P r e l i m i n a r y e s t i m a t e s f o r September seem t o i n d i c a t e t h a t German t r a d e has r e c o v e r e d and moved away f r o m the u n u s u a l l y low t r a d e s u r p l u s e s r e g i s t e r e d i n J u l y and August 0 The September t r a d e s u r p l u s was g e n e r a l l y i n l i n e wi* o. t h o s e r e c o r d e d i n t h e l a s t q u a r t e r of 1961 and t h e f i r s t two q u a r t e r s of 1962 „ Table i u German F o r e i g n Trade ( s e a s o n a l l y a d j u s t e d , , monthly or c a l e n d a r month i n m i l l i o n s cf U 0 S 0 d o l l a r s ) Calendar Year I960 1961 Exports Imports Surplus 952 8L7 105 1,(#7 912 145 I 1,03? 803 1961 II III 1,071 917 1,085 918 IV 1,052 AT 105 1,080 989 91 II_ July 1,110 1.019 91 1,052 1,033 19 Augo SeptoJ " a / P r e T I r ^ n a r y ^ e F t i ^ t e ^ b a ^ d c n " p a r t i a l data» The r a t e of i n c r e a s e of i m p o r t s was more moderatei September 1962 i m p o r t s were o n l y 6 p e r c e n t h i g h e r t h a n l a s t y e a r 0 s 0 C h a n c e l l o r Adenauer announced, i n c o n j u n c t i o n w i t h t h e 3 - p o i n t economic s t a b i l i z a t i o n program« t h a t the F e d e r a l Government would s u p p o r t j u s t i f i e d demands f o r t h e removal of d i s t o r t i o n s i n i n t e r n a t i o n a l t r a d e o Behind t h i s lay c o m p l a i n t s f r o m t h e s h i p b u i l d i n g and motor i n d u s t r i e s t h a t t h e German turnover- t a x p l a c e d them a t a d i s a d v a n t a g e w i t h t h e i r f o r e i g n c o m p e t i t o r s 0 As another counter-measure a g a i n s t p r i c e i n c r e a s e s in the c o n s t r u c t i o n f i e l d 9 the Government r e d u c e d intra-EEC t a r i f f s f o r s e l e c t e d b u i l d i n g m a t e r i a l s 0 OFFICIAL USE ONLY OFFICIAL USE ONLY - 7 - Reserves and swap rates„ Gross gold and f o r e i g n exchange reserves of the Bundesbank rose $20 m i l l i o n i n August; commercial bank holdings of f o r e i g n exchange decreased by $59 m i l l i o n . The r e s u l t i n g decrease i n combined reserves was $39 m i l l i o n for August. Table 5<> ( i n m i l l i o n s of U.S. d o l l a r s ) I Bundesbank Comm. banks Total +300 +179 +799 1961 II III -282 +k0h b/+122 -570 - 7U -SHU IV I + 68 -U27 -3^9 -U63 +601 +w II +U8 -89 -"US 1962 -19 +UU +55 ' M i Segt, +20 -59 -39 +211 n.a. b / A f t e r s p e c i a l debt prepayments of $776 m i l l i o n t o the United States and the United Kingdom0 The t o t a l would be a reserve gain of $898 m i l l i o n , i f adjusted for these t r a n s a c t i o n s . In September commercial banks repatriated $260 m i l l i o n n e t of swap engagements. On September 2Uth the Bundesbank reduced swap charges by 1/2 of 1 per cent i n order t o stem the l a r g e - s c a l e r e p a t r i a t i o n of banking funds but r e p a t r i a t i o n s continued i n September d e s p i t e the.reduction i n r a t e s and commercial banks entered i n t o r e l a t i v e l y few ($U0 m i l l i o n ) new engagements• Bundesbank gross gold and foreign exchange reserves rose $211 i n September, Preliminary estimates therefore would seem to indicate a moderate decline i n combined German reserves for September. Exchange r a t e s . The D-Mark was weak against the d o l l a r during the second h a l f of September and most of October. (See Chart 8 . ) The rate of exchange quoted on the DM remained below par, f l u c t u a t i n g between 2U.998 and 2U»970. The continued strength of the d o l l a r against the mark i s attributed to the passive German balance of payments f o r July and to the conclusion of the IMF meetings. Europe and B r i t i s h Commonwealth S e c t i o n . II. Nine Charts on Financial Markets Abroad OFFICIAL USE ONLY - 8 = Table 6 . Germany: Selected Money Market Yields and Exchange Rates ' (per cent per annum) 3-rno. Eurod o l l a r deposits London 3-mo. i n t e r - Spread i n favor bank loans London Frankfurt 3-mo. U.S. $ i n t o Marks Comm. bank£/ Market U.K. Ger 0 U.S. —0.60 -0.73 -1.30 6.00 5.31 5.28 2.13 2.00 2.00 2.31 2.U7 2.60 -0.95 -0.62 -0.35 -0.32 -0.35 -0.21 -0.82 -0.63 -Oo65 -0.69 -0.65 —O0U8 -0.U7 -0.58 U.3U 5 . kh U.3U U.03 3.69 3.78 3.81 3.69 3.66 3.63 3.63 3.56 3.55 3.53 1.88 1.88 2.00 2.13 2.13 2.25 2.38 2.50 2.50 2.50 2.50 2.50 2.63 2.63 2.7ii 2.83 2.75 2.7k 2.69 2.7U 2.88 2.82 2.79 2.78 2.76 2.7k 2.76 2.77 1961-0ct. 6 Nov. 10 Dec. 22 3.25 3.31 3.88 U.00 3.63 3.75 -0.75 -0.32 +0.13 -0.25 -0.25 1962-Jan. Feb. Mar. Apr. May June July Aug. Sep. 3.63 3.UU 3.69 3.# 3.81 3.66 3.9U 3.72 3.8k 3.91 3.9U 3.81 3.81 3.91 3.00 2.75 2.63 2.9k 3.13 n.a. 3.31 3.38 3.19 3.2S 3.19 3.19 n.a. n.a. +0.50 +0.56 +1.06 +0.56 +0.68 n.a. +0.63 +0.3U +0.65 +0.66 +0.75 +0.62 n.a. n.a. -0.25 -0.50 -0.25 -0.25 -0.25 -0.25 -0.50 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 5 16 30 27 25 27 2k 7 lU 21 28 Oct. 5 12 — 3-mo. Treas. b i l l s a / Bundesbank s p e c i a l rate for 2 t o . 6 month d e p o s i t s . Germany: Selected Loan, Deposit and Security Rates (per cent per annum) Comm. bank , loans^/ 6-12 mo. deposits Savings Time Bond y i e l d s Public 5-1/256 Railway author1958-83 i t i e s Share yields Yield gaP 1959-March Dec. 7.25 8.50 3.25 3.25 2.50 3.25 5.U 5.9 5.6 6.2 3.22 2.19 2.U U.o 1960-March Dec. 8.50—8.50 3.75 U.50 3.25 3.50 6.3 5.9 6.U 6.2 2.27 1.96 U.l U.2 196l-March Dec. 8.00 7.50 L.25 3.50 3.25 2.75 5.8 6.0 5.9 6.0 2.11 2.1*9 3.7 1962-Jan. Feb. Mar. Apr. May June July Aug. Sept. 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 3.50 3.50 3.50 • 3.50 3.50 3.50 3.50 3.50 2.75 2.75 2.75 2.75 2.75 2.75 2.75 2.75 5.8 5.7 5.6 6.6 5.7 5.8 5.8 5.8 5.9 5.9 5.7 5.6 5.6 5.8 5.9 5.9 6.0 2.57 2.61 2.65 2.77 3.23 3.U9 3.71 3.58 3.3 3.1 3.0 2.8 2.6 2.3 2.1 2.2 a / Approved c r e d i t s on current account. INTEREST T h u n d o y ARBITRAGE, RATE UNITED S T A T E S / C A N A D A figure* THREE-MONTH TREASURY DIFFERENTIAL AND BILL RATES FORWARD S P R E A D IN F A V O R e, CANADIAN DOLLAR EXCHANGE COVER OF CANADA + A / RATE DIFFERENTIAL WITH FORWARD NET I N C E N T I V E IN F A V O R OF C A N A D A + + 1959 1960 1961 1962 INTEREST ARBITRAGE, NEW Y O R K / L O N D O N ila. Per 3-MONTH i RATE TREASURY 1 r T DIFFERENTIAL "3-MONTH FORWARD B|LL per RATES AND_ | STERLING SPREAD IN 'FAVOR Of 1 0 N D 0 N 1 -1 1 RAT E DIF F E R E N T I A L . W I T H FOF( W A R D EXC : H A N G E - COVER 1 Tr iF A V O R J 1 <) F N E W Y O4 R K \ IN 1 A V O I I | M 11 11 11 11 J S 0 M 1959 ( 11 I I 11 11 J S D M "i960 11 11 11 I S D 1961 11 M 11 J 1962 11 S 11 1 INTEREST ARBITRAGE J ^ M O N J H FOR TREASURY -JURO-DOLLAR GERMAN BILLS, DEPOSIT COMMERCIAL INTERBANK BANKS LENDING RATE AND RATES EURO-DOLLAR RATE - DIFFERENTIAL ZNx/_Vl FORWARD DEUTSCHE MARK OF F R A N K F U R T INTERBANK LOAN RATE \ / ; V RATE AND I S P R E A D IN F A V O R \ DIFFERENTIAL NET I N C E N T I V E : A , F O R W A R D RATE 1 DISCOUNT ( — ) WITH X y FORWARD 1 v / EXCHANGE \ COVER IN F A V O R O F F R A N K F U R T ( + ) INTERBANK LOAN RATE T R E A S U R Y BILLS Gftr m o n commercial fc I N T E R E S T A R B ITR A G E , F R A N K F U RT / t O N D O N F riday figures ~ 3 - M O N T H ~ T R E A S U R Y BILLS A N D INTERBANK L E N D I N G RATES" i — r — V A GERMAN INTERIANK GERMAN TREASURY IILLS RATE D I F F E R E N T I A L A N D j - 3 - M O N T H FORWARD STERLING GERMAN TREASURY I I U S r—! GERMAN J N T E I I A N t - - .1 i : l " i i [ : I RATE D I F F E R E N T I A L W I T H F O R W A R D E X C H A N G E C O V E R GERMAN INTERIANK \r 1960 i 1961 19 6 2 ..Cho" A SHORT-TERM INTEREST RATES iX4>^ IUIO-DOUAI - lONDONA (3 month inter bonk depout rule) and Switzerland (3 month depoii dollar depon L Y\ LONG-TERM BOND YIELDS 1960 1962 INDUSTRIAL STOCK INDICES' 195ftsi00 Ratio scale 450 1961 Note- Japan: Inde* of all ifocki traded on Tokyo exchange SPOT EXCHANGE RATES - MAJOR CURRENCIES AGAINST U.S. DOLLAR A • V \ — / < ^ i / j - \ V GERMAN —- MARK, 3-MONTH AGAINST 'AGAINST FORWARD U. S. EXCHANGE RATES DOLLARS POUND STERLING - LONDOLN —r U.S. D O U A R AGAINST POUND STERLING FRENCH I960 - LONDON FRANC A W 1962
@FedFRASER