er option to purchase.

In most instances the manufacturer taking these war orders has been
obliged to enlarge his plants, add new machinery and purchase raw
materials so as to be able to handle the business. This meant the
expenditure of large amounts of money on his part.

He did not have to depend, however, upon his own normal financial
resources, as the contracts carry a substantial cash payment in
advance, usually 25 per cent. of the total contract price. This
advance payment is deposited in some New York bank simultaneously with
the manufacturer's depositing a surety bond guaranteeing his
deliveries, and upon the manufacturer executing an additional surety
bond guaranteeing his responsibility he could draw down all or any
part of the cash advance he might wish to use for his immediate needs.

Before issuing these bonds the surety companies make rigid examination
as to the ability of the manufacturer to fulfill his contract. The
commission charged for issuing these bonds is from 2-1/2 to 5 per
cent. on the amount involved. The demand for bonds has been so great
during the last six months that it has taxed to the limit the combined
resources of all the surety companies in the country.

The remaining part of the contract price is usually guaranteed by
bankers' irrevocable letters of credit or deposits made with New York
banks, to be drawn against as the goods are delivered, f.o.b. the
factory--that is, free on board the cars--or f.a.s. the seaboard--that
is, free alongside ship--as the terms may provide.

Banks here are beginning to purchase bank acceptances or bank-accepted
bills of exchange, and in this manner payment is also being made to
American manufacturers for goods sold to the Allies. For example, when
a purchasing agent in Paris places an order for ammunition here he
makes arrangements whereby the manufacturer will be authorized to draw
on a New York banking institution at a stipulated maturity, and after
acceptance of his drafts by such banking institution he could then
negotiate these time drafts with his own banker--thus making them,
less the discount, equivalent to cash--through whom they could be
rediscounted by the Federal Reserve banks. These bank-accepted bills
are discounted at a nominal rate of interest.

Before the war we were a debtor nation; today we are rapidly becoming,
if we have not already become, a creditor nation. A year ago we were
selling abroad only about as much goods as we wer