Tsar Alexander III’s Russian Gold Loan. The Russian government of Tsar Alexander III issued a 100-year bearer bond in 1894 (one of the coupon payments and the bond itself are reproduced on the following pages). A bearer bond is a security sold to an investor in which the bearer of the bond, the holder, is entitled to receive an interest payment

(the coupon) at regularly scheduled dates as listed on the bond. There is no record kept by any authority of who owns the bond, the bearer is the implicit owner. There is also no record of who receives the coupon payments, if the coupons are redeemed at the recommended banks and cities of the time. This allowed the investor to earn the interest without tax authorities knowing the investor’s identity. These tax-free returns allowed the bond issuer, in this case the Tsar, to raise capital at lower interest rates.

This bond paid interest on a quarterly basis. As noted on the coupon and on the bond itself, there were explicit dates on each individual coupon as to when it could be redeemed. In order for the investor to redeem their coupons for cash payment, the bond contained a sheet of coupons that were numbered and dated. These individual coupons were clipped from the sheet and taken to one of the listed banks around the world to receive their interest payment.

This bond listed the cities and the amount of the interest payment in local currency terms. The 118th coupon in the series is reproduced on page 78.

This 118th coupon, which the bearer can present for payment beginning June 18, 1923, indicates what payment the bearer can receive depending on which currency the bearer is receiving payment. This obviously implies a set of fixed exchange rates in effect on the date of issuance (1894). Use the coupon above and the bond on the following page to answer the following questions.

a. What is the value of the total bond as originally issued in French francs, German marks, British pounds, Dutch florins, and U.S. dollars?

b. Create a chart that shows the fixed rate of exchange implied by the coupon for the six different currencies.

c. Create a second chart that compares these exchange rates with these same exchange rates today (use either the Wall Street Journal or Financial Times to find current exchange rates).