Internal War Loans Belligerent Countries

while the rates in the borrowing countries are left lower than
they would be if each nation were forced to raise all its loans
internally. Intercountry loans must, therefore, be taken into
consideration in judging the relative credit standing of belligerents.
Where Germany has granted conversion rights it has been
into issues which are lower interest bearing but which provide
for at least part redemption at premiums by drawings.
If bonds are entirely called for redemption, holders may be
paid at par in cash or at their option with obligations of
lower interest rates but with possibilities of greater premiums.
For example, the 4^% Treasury Certificates of the
Sixth, Seventh and Eighth War Loans are redeemable by annual
drawings at 110. The Government, however, reserves the
right to redeem the entire outstanding amount at par on or
after July 1, 1927, in which case holders have the option of
receiving either cash or 4% Treasury Certificates. These
4% Treasury Certificates are to be redeemable by drawings
at 115, the Government, however, reserving the right at any
time after ten years to redeem the entire outstanding amount
at par. Holders will then have the right to receive cash or
ZV^f 0 Treasury Certificates redeemable by drawings at 120.
Such certificates as may be left outstanding will mature at
the latest July 1, 1967 and are to be paid at no, 115 or 120
according as they may be either 4j4%, 4% or 3^% certificates.
Superficially, this diversification of terms should satisfy
the wishes of all classes of investors but the effect of inducing
conversion into lower interest bearing certificates
through the possibility of receiving a premium actually makes
the certificates fundamentally a lottery obligation.
Most of the German loans did not begin to bear interest
until from three to six months after subscriptions were taken,
but payments made prior to initial interest bearing date have
been discounted at the coupon rate. For instance, the Third
German War Loan offered in September, 1915, did not begin
to bear interest until April 1, 1916.
The interest on the National Defense Bonds of France is
payable at the beginning instead of at the end of each quarter.
The five year bonds are redeemable at the option of the
holder, each six months after one year from date of issue.
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