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Home -> William Cotton -> Everybody's Guide to Money Matters -> Chapter 4

Everybody's Guide to Money Matters - Chapter 4

1. Chapter 1

2. Chapter 2

3. Chapter 3

4. Chapter 4

5. Chapter 5

6. Chapter 6

7. Chapter 7

8. Chapter 8

9. Chapter 9

10. Chapter 10

11. Chapter 11

12. Appendix


GOING back to the parcel of securities which
Miss Smith received from her lawyer, we will
presume that they represent safe investments of
various kinds. It will be prudent, however, to
ask her banker to examine them to see if any,
in his judgment, might be sold with advantage
(either on account of doubtful character or ex-
ceptionally high price), and the money invested
elsewhere. This business the bank will transact
for her; and in the matter of investment, in
addition to using her own common sense as to
the nature of the securities in which she should
place her money, she should seek the advice
of her banker, and rely very much upon his

The undertakings in which the public are in-
vited to invest their money are so numerous,
and the prospects of success so speciously
asserted, in good and bad alike, that it is necessary
to be extremely cautious in accepting any state-
ments of the kind without rigid examination and
proof of their being true and genuine. Other-
wise the investment or purchase becomes a
speculation, and, more than likely, will only end
in disaster.

The term "securities" applies both to the
concerns in which investments are made and to
the deeds and documents which represent the
investments. Thus a mortgage or a mortgage
deed is a "security." The Government Funds,
stocks and shares in all companies, bonds,
foreign and otherwise, Corporation Stocks, &c.,
are all termed "securities." A convertible se-
curity is one which may be sold in the open
market, there being no restriction upon the
persons who may hold it.

We will now endeavour to put before the
reader some account of the various "securities"
in which the public invest their money accord-
ing to individual choice, and which (with the
exception of mortgage on real property-land
or houses) may be bought and sold in the stock-
market through the agency of a banker or
broker. Quotations of the market price of these
securities may be found in the Stock Exchange
list, which is published daily, and can be seen
at most bankers' offices. Many of them are
also quoted in the daily newspapers.


To invest money upon mortgage is to lend it
to a person who has house or landed property,
and desires to borrow money at a certain speci-
fied rate of interest. The title deeds of the
property are deposited with the lender of the
money, together with a mortgage deed, which
describes, in full detail, the terms which may
have been agreed upon.

The interest is usually made payable half-
yearly, and in the event of its payment not
being kept up, or the lender desiring the return
of his money, the principal sum can be called
up, the lender giving six months' notice of his
intention to do so. If the borrower fails to pay,
a process of law has to be instituted, called a
foreclosure suit, which, if successful, transfers
the absolute ownership of the property into the
hands of the lender, so that he can receive the
rents as his own, or, if he pleases, sell the
property under legal authority. In view of such
a contingency the value of the property should
considerably exceed the amount of the money
advanced, so as not only to cover the principal
sum, but also any arrears of interest, together
with law costs and expenses. The usual pro-
portion of an advance on mortgage is two-thirds
of the ascertained value of the property, but
there might be circumstances which would war-
rant some variation in the proportion.

The mortgage deed should be prepared by the
lender's own solicitor, who would see that the
property had a good title and use all the pre-
cautions necessary in transactions of this kind
to guard against fraud and loss; and in many
cases a professional valuation of the property
would be desirable, as a preliminary, before the
advance is entertained at all.

Cases have been known where fraudulent per-
sons have borrowed money on mortgages of
property conveyed to themselves, but as to which
they were trustees only for others. The lenders
or mortgagees have, in such cases, no alternative
but to give up the deeds and submit to the loss
of their money.

Debentures are a form of mortgage applicable
to the raising of money by a corporation or
joint-stock company.

The company mortgages its property for a
certain sum, too large for a single person to
advance, so it is divided up into even amounts
of, say, ?100, the money being secured by de-
benture bonds, bearing interest at a fixed rate,
and being saleable in the stock markets.


"What are the Funds?" The writer has been
asked this question over and over again, though
it seems scarcely credible that, in these days,
any person of ordinary intelligence should be
ignorant of the meaning of the term. Unfor-
tunately these things are not usually taught in
our schools.

"The Funds," generally speaking, is the term
applied to the National Debt of Great Britain,
the money borrowed by the Government from
the people, chiefly for the purpose of carrying on
the great wars at the beginning of the present
century. For these loans as much as 5 per cent.
has in former years been paid, but at present 2 3/4
is the rate payable on the great bulk of the debt.

The year after the Battle of Waterloo the
National Debt amounted to nine hundred mil-
lions of money; at the present time it amounts
to about five hundred and seventy millions, and
is steadily diminishing. This being the case,
there is of course no need of further borrowing
at present, but the loans outstanding - any por-
tion of them - may be bought and sold in the
market; that is, any lender may transfer all or
any part of his loan to some other person, and
as there are, daily, hundreds and thousands of
individuals wanting to buy or to sell, there is no
difficulty whatever, through the medium of the
Stock Exchange, in arranging so that a person
can obtain, or dispose of, the exact amount of
stock he desires.

The chief method by which the National
Debt is reduced is described under the head of
Terminable Annuities.


The stock of an institution or company is a
fixed sum forming the capital upon which the
concern is carried on, or it is the fixed sum bor-
rowed for certain purposes. Any quantity of
stock may be purchased, but shares, which
represent the capital of a company, can only be
purchased in whole numbers.

The nominal or face value of stocks and
shares by no means necessarily represents their
market value; in fact it is the exception that
they should do so. The market price is con-
tinually fluctuating. Thus, if the price of a
given stock is quoted in the lists and news-
papers at 110, it means that for every ?100 of
such stock ?10 additional has to be paid, and
the stock is said to be at 10 premium. If, on
the other hand, it is quoted at 90, it means that
?100 of such stock can be purchased for ?90,
and the stock is said to stand at a discount of
10. The interest in either case is of course
calculated on the face value, that is, ?100.

This applies to all kinds of stock on the same
principle, the prices varying according to the
esteem in which they are held, or, in other
words, the credit they have with the moneyed

The shares of companies, which are only
purchasable in whole numbers, are of various
denominations, or face values; and again these
face values by no means represent the market
value. Shares of ?5 each (nominal value) may
be quoted as selling at 6, which would be 1 pre-
mium, but the dividend or interest would be
calculated on ?5. On the other hand, a ?5
share quoted at 4 would be 1 discount, but the
dividend or interest would still be calculated on
the face value of ?5.

In very many cases the whole of the nominal
value of a share is not called up, _i.e._, is not re-
quired to be immediately paid. Thus a ?5 share
may have only ?3 paid upon it, leaving a lia-
bility of ?2, which the holder may at any time
be called upon to pay, whether convenient or
not. This should always be borne in mind when
purchasing shares of any kind, as the neglect of
this precaution has often involved holders in
serious difficulties, from being called upon to
pay up when least able to do so.

The dividend on shares of this kind is calcu-
lated only on the amount paid up.


A dividend is the sum apportioned periodi-
cally, in the shape of profit or interest, to holders
of stocks and shares. It may be a fixed sum
according to the rate of interest, as in the case
of the Funds, Colonial Stocks, &c., or a varying
sum according to the profits made, as in the case
of railway shares and those of other companies.
The dividends on the Funds and some Colonial
Stocks are paid quarterly, at the beginning of
January, April, July, and October. A month
prior to the date of payment the stocks are
marked "ex-div.," meaning that any purchase
effected after the 1st December, 1st March, 1st
June, and 1st September, would not carry that
quarter's dividend, as it is held in favour of the
person whose name is registered on the books
on those dates.

The interest dependent upon the shares or
stocks of companies is usually paid half-yearly,
after the periodical meeting, when the accounts
are presented and the profits declared. A cer-
tain date is fixed when these shares and stocks
are saleable "ex-div." or "ex-interest."

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