Financial Glossary
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L
- A Nasdaq stock symbol specifying that it is a miscellaneous situation such as a depositary receipt, stub, additional warrant or unit.
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L-Shaped Recovery
- A type of economic recession and recovery that resembles an "L" shape in charting. An L-shaped recovery represents the shape of the chart of certain economic measures, such as employment, GDP and industrial output. An L-shaped recovery involves a sharp decline in these metrics followed by a long period of flat or stagnant growth.
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Labor Intensive
- A process or industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods/services; the higher the proportion of labor costs required, the more labor intensive the business.
Labor intensive industries include restaurants, hotels, agriculture and mining.
- A process or industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods/services; the higher the proportion of labor costs required, the more labor intensive the business.
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Labor Productivity
- A measurement of economic growth of a country. Labor productivity measures the amount of goods and services produced by one hour of labor. More specifically, labor productivity measures the amount of real GDP produced by an hour of labor. Growing labor productivity depends on three main factors: investment and saving in physical capital, new technology and human capital.
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Labor-Sponsored Venture Capital Corporations - LSVCC
- A type of Canadian corporation created by a labor union that deals exclusively with providing venture capital. Unlike other venture capital corporations, LSVCCs are subject to tight regulations. The investment funds from LSVCCs are called labor-sponsored investment funds (LSIFs).
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Ladder Option
- An option that locks-in gains once the underlying reaches predetermined price levels or "rungs," guaranteeing some profit even if the underlying security falls back below these levels before the option expires.
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Laddering
- The promotion of inflated pre-IPO prices for the sake of obtaining a greater allotment of the offering.
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Lady Godiva Accounting Principles - LGAP
- A theoretical set of accounting principles under which corporations would have to fully disclose all information, including that which often doesn't get reported to investors under generally accepted accounting principles (GAAP).
These principles include disclosure of the following:
-all off-balance sheet items
-how new goodwill accounting rules (introduced in 2002) impact earnings per share (EPS)
-the impact on EPS of stock options issued in lieu of salaries
-how pension expenses are accounted for
- A theoretical set of accounting principles under which corporations would have to fully disclose all information, including that which often doesn't get reported to investors under generally accepted accounting principles (GAAP).
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Lady Macbeth Strategy
- A corporate-takeover strategy with which a third party poses as a white knight to gain trust, but then turns around and joins with unfriendly bidders.
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Laffer Curve
- Invented by Arthur Laffer, this curve shows the relationship between tax rates and tax revenue collected by governments. The chart below shows the Laffer Curve:
The curve suggests that, as taxes increase from low levels, tax revenue collected by the government also increases. It also shows that tax rates increasing after a certain point (T*) would cause people not to work as hard or not at all, thereby reducing tax revenue. Eventually, if tax rates reached 100% (the far right of the curve), then all people would choose not to work because everything they earned would go to the government.
- Invented by Arthur Laffer, this curve shows the relationship between tax rates and tax revenue collected by governments. The chart below shows the Laffer Curve:
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Laggard
- A stock or security that is underperforming. A laggard will have lower-than-average returns compared to the market. A laggard is the opposite of a leader.
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Lagged Reserves
- A method of bank reserve calculation whereby the financial institution is required to keep a certain level of reserves with a Federal Reserve bank. The amount of reserves required is based on the value of all outstanding deposits in the bank's demand deposit accounts from two weeks prior.
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Lagging Indicator
- 1. A measurable economic factor that changes after the economy has already begun to follow a particular pattern or trend.
2. A technical indicator that trails the price action of an underlying asset and is used by traders to generate transaction signals or to confirm the strength of a given trend. Since these indicators lag the price of the asset, a significant move will generally occur before the indicator is able to provide a signal.
- 1. A measurable economic factor that changes after the economy has already begun to follow a particular pattern or trend.
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Laissez Faire
- An economic theory from the 18th century that is strongly opposed to any government intervention in business affairs.
Sometimes referred to as "let it be economics."
- An economic theory from the 18th century that is strongly opposed to any government intervention in business affairs.
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LAK
- The currency abbreviation or currency symbol for the Lao kip (LAK), the currency of Laos. The kip is made up of 100 att, and is often presented with the symbol (__). The first kip coins minted in 1952 had holes in the center like chinese coins.
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LAK (Lao Kip)
- The currency abbreviation or currency symbol for the Lao kip (LAK), the currency of Laos. The kip is made up of 100 att, and is often represented with a symbol that looks like a capital letter K with a horizontal dash through the center. The first kip coins minted in 1952 had holes in the center like Chinese coins.
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Lambda
- A ratio comparing change in option price to a 1% change in option volatility.
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Lame Duck
- A person who has defaulted on his or her debts or has gone bankrupted due to the stock market. The financial use of the term is most commonly used in Europe.
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Land
- Property or real estate, not including buildings or equipment, that does not occur naturally. Depending on the title, land ownership may also give the holder the rights to all natural resources on the land. These may include water, plants, human and animal life, fossils, soil, minerals, electromagnetic features, geographical location, and geophysical occurrences.
- Property or real estate, not including buildings or equipment, that does not occur naturally. Depending on the title, land ownership may also give the holder the rights to all natural resources on the land. These may include water, plants, human and animal life, fossils, soil, minerals, electromagnetic features, geographical location, and geophysical occurrences.
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Land Contract
- An agreement between a buyer and seller of property in which the buyer makes payments toward full ownership (as with a mortgage), but in a land contract, the title or deed is held by the owner until the full payment is made. This type of contract is technically not a legally binding agreement and, therefore, many different types of payment formats can be found.
As in a standard mortgage, there is an agreed upon price and payment schedule, but the payments are often not amortized evenly, so that a large balloon payment may be required to complete the purchase. Also known as an installment purchase contract or an installment sale agreement.
- An agreement between a buyer and seller of property in which the buyer makes payments toward full ownership (as with a mortgage), but in a land contract, the title or deed is held by the owner until the full payment is made. This type of contract is technically not a legally binding agreement and, therefore, many different types of payment formats can be found.
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Land Flip
- A fraudulent practice in the real estate business of selling undeveloped land at highly inflated prices. A land flip occurs when a group of dishonest buyers trades the land among its members, increasing the price with each transaction. The group will then finally unload the property onto an unsuspecting outside buyer at a price that the buyer will likely never be able to recoup from its own sale of the land.
- A fraudulent practice in the real estate business of selling undeveloped land at highly inflated prices. A land flip occurs when a group of dishonest buyers trades the land among its members, increasing the price with each transaction. The group will then finally unload the property onto an unsuspecting outside buyer at a price that the buyer will likely never be able to recoup from its own sale of the land.
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Land Lease Option
- An option within a lease contract that grants the lessee the right to extend the period of the lease beyond the original length of time. Usually, the lessee is required to pay a premium for the option, such as a small amount of money in each year of the original lease.
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Land Rehabilitation
- A re-engineering process that attempts to restore an area of land back to its natural state after it has been damaged as a result of some sort of disruption. The process involves such things as removing all man-made structures, toxins and other dangerous substances, improving the soil conditions and adding new flora.
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Land Trust
- A legal agreement where a trustee is appointed to maintain ownership of a piece of real property for the benefit of another party: namely, the beneficiary of the trust. Land trusts are used by several different types of organizations for several reasons; nonprofit entities use them to hold conservation easements, and corporations and investment groups use them to accumulate large portions of land.
These agreements can also be known as Illinois-type land trusts.
- A legal agreement where a trustee is appointed to maintain ownership of a piece of real property for the benefit of another party: namely, the beneficiary of the trust. Land trusts are used by several different types of organizations for several reasons; nonprofit entities use them to hold conservation easements, and corporations and investment groups use them to accumulate large portions of land.
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Land Value
- The total value of the land, including any upgrades or improvements to the land.
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Landlord
- A real estate owner who rents or leases land or a building to another party, known as a tenant. The landlord will often provide the necessary maintenance or repairs during the rental period, while the tenant is responsible for the cleanliness and general upkeep of the property.
A female landlord may be referred to as a "landlady."
- A real estate owner who rents or leases land or a building to another party, known as a tenant. The landlord will often provide the necessary maintenance or repairs during the rental period, while the tenant is responsible for the cleanliness and general upkeep of the property.
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Landominium
- A type of residential property in which the owner owns both the home and the land on which the home is built. The home is a part of a community, like a condominium, where the landscaping, maintenance and other services are provided by a homeowners' association.
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Lapping Scheme
- An accounting method that involves altering the accounts receivable section of the balance sheet when cash that is intended for the payment of a receivable is stolen. The method involves taking the first receivable collected and using that to cover the theft, while the second receivable collected is accounted to the first, the third receivable to the second, and so on.
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Lapse
- The cessation of a privilege, right or policy due to time or inaction. A lapse of a privilege due to inaction occurs when the party that is to receive the benefit does not fulfill the conditions or requirements set forth by a contract or agreement.
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Large Cap - Big Cap
- A term used by the investment community to refer to companies with a market capitalization value of more than $10 billion. Large cap is an abbreviation of the term "large market capitalization". Market capitalization is calculated by multiplying the number of a company's shares outstanding by its stock price per share.
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Large Trader
- A futures trader who holds or controls a single position that is equal to or greater than the CFTC specified reporting levels.
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Large Value Transfer System - LVTS
- An electronic wire payment system in Canada, facilitating the transfer of funds between large financial institutions, including the central Bank of Canada.
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Large-Value Stock
- A type of large-cap stock investment where the intrinsic value of the company's stock is greater than the stock's market value. The stock's intrinsic value can be determined by using a valuation model such as discounted cash flow and multiples.
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Last Fiscal Year - LFY
- The most recent 12-month accounting period that a business uses when determining its annual financial performance. The SEC requires businesses to list their last fiscal year's revenue (in addition to other financial figures) in their 10-Q filings.
Analysts and management will often use figures and metrics from a company's last fiscal year in order to forecast whether or not a business's current performance will outdo that of the previous fiscal year.
- The most recent 12-month accounting period that a business uses when determining its annual financial performance. The SEC requires businesses to list their last fiscal year's revenue (in addition to other financial figures) in their 10-Q filings.
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Last In, First Out - LIFO
- An asset-management and valuation method that assumes that assets produced or acquired last are the ones that are used, sold or disposed of first.
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Last Mile
- A phrase used in the telecommunications and technology industries to describe the technologies and processes used to connect the end customer to a communications network. The last mile is often stated in terms of the "last mile problem", because the end link between consumers and connectivity has proved to be disproportionately expensive to solve.
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Last Trading Day
- The final day that a futures contract may trade or be closed out before delivery of the underlying asset or cash settlement must occur. By the end of the last trading day, the contract holder must be prepared to accept delivery of the commodity, or settle in cash if the position is not closed.
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Last Twelve Months - LTM
- A term used to describe financial results during the period of the last 12 months.
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Last-Sale Reporting
- An electronic entry, to the Nasdaq stock market, of the amount and price of shares involved in a transaction's not less than a board lot.
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Late-Day Trading
- An unethical (if not illegal) practice of a hedge fund purchasing and then selling securities (usually shares of a mutual fund) after the close of a trading day, but making the transactions appear as though they occurred before the market close.
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Law Of Demand
- A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease and vice versa.
- A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease and vice versa.
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Law of Diminishing Marginal Returns
- A law of economics stating that, as the number of new employees increases, the marginal product of an additional employee will at some point be less than the marginal product of the previous employee.
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Law of Diminishing Marginal Utility
- A law of economics stating that as a person increases consumption of a product - while keeping consumption of other products constant - there is a decline in the marginal utility that person derives from consuming each additional unit of that product.
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Law Of Large Numbers
- In statistical terms, a rule that assumes that as the number of samples increases, the average of these samples is likely to reach the mean of the whole population. When relating this concept to finance, it suggests that as a company grows, its chances of sustaining a large percentage in growth diminish. This is because as a company continues to expand, it must grow more and more just to maintain a constant percentage of growth.
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Law Of One Price
- The theory that the price of a given security, commodity or asset will have the same price when exchange rates are taken into consideration. The law of one price is another way of stating the concept of purchasing power parity.
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Law Of Supply
- A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity of goods or services offered by suppliers increases and vice versa.
- A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity of goods or services offered by suppliers increases and vice versa.
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Lawful Money
- Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves. Fiat money includes legal tender such as paper money, checks, drafts and bank notes.
Also known as "specie", which means "in actual form."
- Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves. Fiat money includes legal tender such as paper money, checks, drafts and bank notes.
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Layaway
- A purchasing method that allows a consumer to put a product on hold by placing a deposit on the item. Layaway allows the customer to make smaller payments on the product until the purchase price is paid in full, rather than paying for the item with credit and adding interest to the cost. A layaway plan ensures that the chosen merchandise will be in stock and ready for pick-up when the final payment is made.
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Layered Fees
- Two sets of management fees that are paid by an investor for the same group of assets. This practice is found in many types of investment vehicles such as wrap funds, variable annuities, registered investment advisor client accounts and even mutual funds.
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Layoff
- 1. When a company eliminates jobs regardless of how good the employees' performance.
2. A risk reduction, made by investment bankers, that minimizes the potential downside associated with a commitment to purchase and sell a stock issue unsubscribed by stockholders holding rights.
- 1. When a company eliminates jobs regardless of how good the employees' performance.
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LBP
- The currency abbreviation or currency symbol for the Lebanese pound (LBP), the currency for Lebanon. The Lebanese pound is made up of 100 qirsh or piastres, and is often presented with the symbol (__). This currency is also called lira in Arabice or livre in French, and all notes and coins are printed and stamped in both Arabic and French.
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LBP (Lebanese Pound)
- The currency abbreviation or currency symbol for the Lebanese pound (LBP), the currency for Lebanon. The LBP is made up of 100 qirsh or piastres. This currency is also called lira in Arabic or livre in French, and all notes and coins are printed and stamped in both Arabic and French.
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Lead Bank
- A bank that oversees the arrangement of a loan syndication. The lead bank is paid an additional fee for this service, which involves recruiting the members and negotiating the financing terms. In the eurobond market, the lead bank acts in an agent capacity for an underwriting syndicate.
- A bank that oversees the arrangement of a loan syndication. The lead bank is paid an additional fee for this service, which involves recruiting the members and negotiating the financing terms. In the eurobond market, the lead bank acts in an agent capacity for an underwriting syndicate.
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Lead Time
- In terms of a supply chain, the total time needed for an order to be processed.
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Lead Underwriter
- A investment bank or other financial outfit that has the primary directive for organizing an initial public stock offering, or a secondary offering for companies that are already publicly traded. The lead underwriter will usually work with other investment banks to establish a syndicate, and thereby create the initial sales force for the shares. These shares will then be sold to institutional and retail clients.
The lead underwriter will assess the company financials and current market conditions to arrive at the initial value and quantity of shares to be sold. These shares carry a hefty sales commission (as much as 6-8%) for the underwriting syndicate, with the majority of shares being held by the lead underwriter.
- A investment bank or other financial outfit that has the primary directive for organizing an initial public stock offering, or a secondary offering for companies that are already publicly traded. The lead underwriter will usually work with other investment banks to establish a syndicate, and thereby create the initial sales force for the shares. These shares will then be sold to institutional and retail clients.
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Leading Indicator
- A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators are used to predict changes in the economy, but are not always accurate.
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Leading Lipstick Indicator
- An indicator based on the theory that a consumer turns to less expensive indulgences, such as lipstick, when she (or he) feels less than confident about the future. Therefore, lipstick sales tend to increase during times of economic uncertainty or a recession.
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Leads And Lags
- The alteration of normal payment or receipts in a foreign exchange transaction because of an expected change in exchange rates. An expected increase in exchange rates is likely to speed up payments, while an expected decrease in exchange rates will probably slow them down.
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League Table
- A ranking of companies based on a set of criteria such as revenue, earnings, deals or any other relevant metrics. The rankings are organized into lists, which can be used for investment research purposes or as promotional material for the companies on the list.
Below is an example of a league table comparing the revenue and % revenue share of four different banks.
- A ranking of companies based on a set of criteria such as revenue, earnings, deals or any other relevant metrics. The rankings are organized into lists, which can be used for investment research purposes or as promotional material for the companies on the list.
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Leakage
- A release of information to certain people before the official public announcement.
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Lease
- An agreement in which one party gains a long-term rental agreement, and the other party receives a form of secured long-term debt.
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Lease Payments
- A line item under long-term debt on a balance sheet that indicates the value of future lease payments due.
Lease payments vary widely between companies, and so it is not necessarily good to compare two companies' lease-payment figures, even if they are in the same industry. It is more valuable to compare long-term debt as a whole.
- A line item under long-term debt on a balance sheet that indicates the value of future lease payments due.
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Lease To Own
- An arrangement where an individual enters into a lease agreement with an owner with the inclusion of a clause that typically gives the individual the right, but not the obligation, to purchase the item leased at a predefined price and time. More often than not, a portion of the total rental payment goes toward paying down the value of the item leased in the event that the renter wishes to exercise the option.
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Leaseback
- An arrangement where the seller of an asset leases back the same asset from the purchaser.
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Leased Bank Guarantee
- A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years. The issuing bank will send the guarantee to the borrower's main bank, and the issuing bank then becomes a backer for debts incurred by the borrower, up to the guaranteed amount.
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Leasehold
- An accounting term used to classify an asset on a company's balance sheet that is leased. In order to be classified as a leased asset, the firm must enter into a lease agreement that is an operating lease, and not a capital lease.
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Leasehold Improvement
- Improvements on a leased asset that increase the value of the asset.
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Leave-Sharing Plan
- A plan that allows employees to donate unused sick-leave time to a charitable pool, from which employees who need more sick leave than they are normally allotted may draw. Leave-sharing plans are designed to aid employees who face major surgeries or other medical emergencies or who live in areas affected by natural disasters, such as flooding. These plans contain many provisions that can vary from one employer to another.
- A plan that allows employees to donate unused sick-leave time to a charitable pool, from which employees who need more sick leave than they are normally allotted may draw. Leave-sharing plans are designed to aid employees who face major surgeries or other medical emergencies or who live in areas affected by natural disasters, such as flooding. These plans contain many provisions that can vary from one employer to another.
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Ledger Balance
- The balance of a customer account as shown on the bank statement. The ledger balance is found by subtracting the total number of debits from the total number of credits for a given accounting period. The ledger balance is used solely in the reconciliation of book balances.
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Leg
- 1. Term describing an order entry technique used by brokers. A leg occurs when a broker executes contingent orders in separate phases, thus increasing the risk for price swings through time delays.
2. A description of different aspects in a combination option.
- 1. Term describing an order entry technique used by brokers. A leg occurs when a broker executes contingent orders in separate phases, thus increasing the risk for price swings through time delays.
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Legacy Asset
- An asset that has been on the company's books for a long period of time. This type of asset has generally decreased in value to the point of a loss for the company. The term comes from the literal meaning of outdate or obsolete.
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Legacy Costs
- The costs involved with a company paying increased healthcare fees and other benefit-related costs for its current employees and retired pensioners. It is believed that escalating legacy costs can be a very large contributing factor towards limiting a company's competitiveness.
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Legacy Hedge
- A hedge position that a company holds for an extended period of time. Commodity companies, such as gold and oil producers, will often have legacy hedges on their reserves. This gives them a more stable stream of revenue as the hedge provides price guarantees.
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Legal Lending Limit
- The aggregate maximum dollar amount that a single bank can lend to a given borrower. The legal limits differ for different types of banks. The Financial Institutions Act of 1989 mandated that all savings and loan institutions must adhere to the same limits set forth for national banks.
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Legal List
- A selection of eligible companies and investments, determined by local state governments, for institutions such as insurance companies and pension plans.
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Legal Monopoly
- A company that is operating as a monopoly under a government mandate. A legal monopoly offers a specific product or service at a regulated price and can either be independently run and government regulated, or government run and regulated.
Also known as a "statutory monopoly".
- A company that is operating as a monopoly under a government mandate. A legal monopoly offers a specific product or service at a regulated price and can either be independently run and government regulated, or government run and regulated.
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Legend
- A notification placed on certain stock certificates describing the terms and conditions of sale and ownership.
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Legislative Overkill
- A law enacted to stop or prevent the abuse of a loophole, but ends up imposing more restrictions than are necessary for reasonable prevention.
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Legislative Risk
- The risk that legislation by the government could significantly alter the business prospects of one or more companies, adversely affecting investment holding in that company. This may occur as a direct result of government action or by altering the demand patterns of the company''s customers,
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Lehman Aggregate Bond Index
- An index used by bond funds as a benchmark to measure their relative performance. The index includes government securities, mortgage-backed securities, asset-backed securities and corporate securities to simulate the universe of bonds in the market. The maturities of the bonds in the index are more than one year.
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Lehman Brothers Asset-Backed Securities Index
- A fixed-income index that focuses on asset-backed securities. The Lehman Brothers Asset-Backed Securities Index serves as the performance benchmark for many ABS funds. The index includes pass-through, controlled-amortization and bullet-structured securities, which have a minimum average life of one year.
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Lehman Brothers Government/Corporate Bond Index
- An unmanaged market-weighted index, comprised of government and investment grade corporate debt instruments with maturities of one year or greater. The Lehman Brothers Government/Corporate Bond Index is a total return benchmark index for many bond funds.
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Lehman Brothers Mortgage-Backed Securities Index
- An index made up of mortgage-backed securities that is used for benchmarking purposes. The Lehman Brothers MBS Index consists of fixed-rate securities, such as mortgage pools created by the Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corp (FHLMC) and Federal National Mortgage Association (FNMA). This index serves as a performance benchmark for many mortgage-backed securities funds.
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Lehman Formula
- A compensation formula developed by Lehman Brothers for investment banking services. The structure is as follows:
-5% of the first million dollars involved in the transaction
-4% of the second million
-3% of the third million
-2% of the fourth million
-1% of everything thereafter (above $4 million)
- A compensation formula developed by Lehman Brothers for investment banking services. The structure is as follows:
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Lehman Investment Opportunity Note - LION
- A type of zero-coupon Treasury bond issued by the U.S. government through Lehman Brothers. Lehman Investment Opportunity Notes (LIONs), were created as a new breed of security that separated principal and interest and were issued at a discount. LIONs made no regular interest payments to bondholders; the return on investment came from realizing the difference between the discounted issue price and the par value received at maturity.
- A type of zero-coupon Treasury bond issued by the U.S. government through Lehman Brothers. Lehman Investment Opportunity Notes (LIONs), were created as a new breed of security that separated principal and interest and were issued at a discount. LIONs made no regular interest payments to bondholders; the return on investment came from realizing the difference between the discounted issue price and the par value received at maturity.
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Lemming
- The act of following the crowd into an investment that will inevitably head for disaster.
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Lemon
- A very disappointing investment. Your expected return wasn't even close to being achieved.
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Lender Of Last Resort
- An institution, usually a country's central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse. In the U.S. the Federal Reserve acts as the lender of last resort to institutions that do not have any other means of borrowing and whose failure to obtain credit would dramatically affect the economy.
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Lender-Paid Private Mortgage Insurance
- Private mortgage insurance that a mortgage lender pays on behalf of a borrower. Mortgage lenders generally require private mortgage insurance if a mortgage has a loan to value (LTV) ratio of more than 80%. When a lender pays the private mortgage insurance on behalf of the borrower, they do so in exchange for charging the borrower a higher interest rate. In other words, the borrower still pays for the private mortgage insurance, but does so in the form of a higher interest rate.
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Lending Facility
- A mechanism that central banks use when lending funds to primary dealers. Lending facilities provide financial institutions with access to funds in order to satisfy reserve requirements using the overnight lending market. Lending facilities are also used to increase liquidity over longer periods such as by using term auction facilities.
- A mechanism that central banks use when lending funds to primary dealers. Lending facilities provide financial institutions with access to funds in order to satisfy reserve requirements using the overnight lending market. Lending facilities are also used to increase liquidity over longer periods such as by using term auction facilities.
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Leprechaun Leader
- A corporate manager or an executive who, like the fabled Irish elf, is a mischievous and elusive creature said to possess buried treasures of money and gold.
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Leptokurtic
- A description of the kurtosis in a distribution in which the statistical value is positive. Leptokurtic distributions have higher peaks around the mean compared to normal distributions, which leads to thick tails on both sides. These peaks result from the data being highly concentrated around the mean, due to lower variations within observations.
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Lessee
- The person who rents land or property from a lessor.
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Lesser-Developed Country - LDC
- A country that is considered lacking in terms of its economy, infrastructure and industrial base. The population of a lesser-developed country often has a relatively low standard of living, due to low incomes and abundant poverty.
Also referred to as "emerging markets".
- A country that is considered lacking in terms of its economy, infrastructure and industrial base. The population of a lesser-developed country often has a relatively low standard of living, due to low incomes and abundant poverty.
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Lessor
- The person who rents land or property to a lessee.
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Let Your Profits Run
- A saying often used in investing that acknowledges the tendency among investors to sell winning positions too early. Most traders tend to take gains off the table early out of fear that they will evaporate quickly, while they also tend to hold onto large losing positions in the hope that they will turn around. The key to letting your profits run is to not panic when volatility increases and to maintain your convictions about why you entered into the trade.
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Letter Of Comfort
- A letter issued to a lending institution by a parent company acknowledging the approval of a subsidiary company's attempt for financing.
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Letter Of Comment
- A letter from the Securities and Exchange Commission that is sent to a company in response to filing its registration statement. The main purpose of the comment letter is to assist the issuing company in making the information in their registration statement (or S-1) clear, transparent and free from irregularity before an issuance of new shares.
The items covered in a registration statement include the company's financial details, operations and management history, and any other important facts. The letter will typically be informal in nature, and is done as a courtesy, saving both the company and the SEC time and frustration down the road, and protecting investors from any misleading or inaccurate information.
- A letter from the Securities and Exchange Commission that is sent to a company in response to filing its registration statement. The main purpose of the comment letter is to assist the issuing company in making the information in their registration statement (or S-1) clear, transparent and free from irregularity before an issuance of new shares.
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Letter Of Credit
- A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.
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Letter Of Guarantee
- 1. A type of contract issued by a bank on behalf of a customer who has entered a contract to purchase goods from a supplier and promises to meet any financial obligations to the supplier in the event of default.
2. A document issued by a bank on behalf of a call writer guaranteeing that the writer owns the underlying asset and that the bank will deliver the underlying securities should the call be exercised.
- 1. A type of contract issued by a bank on behalf of a customer who has entered a contract to purchase goods from a supplier and promises to meet any financial obligations to the supplier in the event of default.
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Letter of Indemnity
- 1. A letter guaranteeing that contractual provisions will be met, otherwise financial reparations will be made.
2. A letter requesting replacements for lost shares from a company's treasury.
- 1. A letter guaranteeing that contractual provisions will be met, otherwise financial reparations will be made.
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Letter of Intent - LOI
- 1. An agreement that describes in detail a corporation's intention to execute a corporate action. The letter of intent is created by the corporation with its management and legal council, among others, and outlines the details of the action.
2. A document that can be used by parents to outline the thoughts and hopes that they have regarding their children in the event that the parents die. The courts use the information contained in the letter of intent to determine what happens to the children.
- 1. An agreement that describes in detail a corporation's intention to execute a corporate action. The letter of intent is created by the corporation with its management and legal council, among others, and outlines the details of the action.
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Letter Security
- A security that is not registered with the SEC, and so cannot be sold publicly in the marketplace.
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Level 1
- A trading service consisting of real-time bid/ask quotes for securities trading on the Nasdaq stock market and comparable information for securities quoted in the OTC Bulletin Board Service.
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Level 1 Assets
- Assets that have readily observable prices, and therefore a reliable fair market value. Level 1 assets include listed stocks, bonds, funds, or any assets that have a regular “mark to market” mechanism for pricing. Publicly traded companies must classify all of their assets based on the ease that they can be valued, with Level 1 assets being the easiest.
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Level 2
- A trading service consisting of real-time access to the quotations of individual market makers registered in every Nasdaq listed security, as well as market makers' quotes in OTC Bulletin Board securities.
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Level 2 Assets
- Assets that do not have regular market pricing, but whose fair value can be readily determined based on other data values or market prices. Sometimes called “mark to model” assets, Level 2 asset values can be closely approximated using simple models and extrapolation methods using known, observable prices as parameters. Part of an overall requirement of publicly-traded companies is that they are required to report to investors the makeup of their assets based on certainty of fair value calculations.
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Level 3
- A trading service consisting of everything in Level 2, plus the ability to enter quotes, execute orders and send information. This service is restricted to NASD member firms that function as registered market makers.
Also know as "Level III".
- A trading service consisting of everything in Level 2, plus the ability to enter quotes, execute orders and send information. This service is restricted to NASD member firms that function as registered market makers.
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Level 3 Assets
- Assets whose fair value cannot be determined by using observable measures, such as market prices or models. Level 3 assets are typically very illiquid, and fair values can only be calculated using estimates or risk-adjusted value ranges. In addition to Level 1 and Level 2 assets (both of which have more accurate fair values), Level 3 assets must be reported on by all publicly traded companies as of 2008.
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Level Load
- An annual charge deducted from an investor's mutual fund assets to pay for distribution and marketing costs for as long as the investor holds the fund. For the most part, this fee is paid to intermediaries for selling a fund's shares to the retail public.
Also known as a "12b-1 fee".
- An annual charge deducted from an investor's mutual fund assets to pay for distribution and marketing costs for as long as the investor holds the fund. For the most part, this fee is paid to intermediaries for selling a fund's shares to the retail public.
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Level-Premium Insurance
- A type of term life insurance for which the premiums remain the same throughout the duration of the contract. The premium paid on this type of policy will be higher at the beginning of its life but lower towards the end of its life as compared to term policies that have rising premium rates.
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Leverage
- 1. The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.
2. The amount of debt used to finance a firm's assets. A firm with significantly more debt than equity is considered to be highly leveraged.
Leverage is most commonly used in real estate transactions through the use of mortgages to purchase a home.
- 1. The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.
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Leverage Ratio
- 1. Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses.
2. A ratio used to measure a company's mix of operating costs, giving an idea of how changes in output will affect operating income. Fixed and variable costs are the two types of operating costs; depending on the company and the industry, the mix will differ.
- 1. Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses.
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Leveraged Buyout - LBO
- The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital.
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Leveraged Employee Stock Ownership Plan - LESOP
- An equity compensation system in which the sponsoring company typically leverages its credit to borrow money, which it then uses to fund the plan, in order to purchase company shares from the company's treasury. The shares are used for the purposes of the stock ownership plan, and the company pays back the original loan with annual contributions.
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Leveraged ETF
- An exchange-traded fund (ETF) that utilizes financial derivatives and debt to amplify the returns of an underlying index. Leveraged ETFs are available for most indexes, such as the NASDAQ-100 and the Dow Jones Industrial Average. These funds aim to keep a constant amount of leverage during the investment time frame, such as a 2:1 or 3:1 ratio.
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Leveraged Lease
- A lease agreement wherein the lessor, by borrowing funds from a lending institution, finances the purchase of the asset being leased.
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Leveraged Loan
- Loans extended to companies or individuals that already have considerable amounts of debt. Lenders consider leveraged loans to carry a higher risk of default and, as a result, a leveraged loan is more costly to the borrower.
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Leveraged Loan Index - LLI
- A market-weighted index that tracks the performance of institutional leveraged loans. By monitoring spreads and interest payments, the index can be a useful tool in gauging the health of the institutional loan markets.
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Leveraged Recapitalization
- A strategy where a company takes on significant additional debt with the purpose of either paying a large dividend or repurchasing shares. The result is a far more financially leveraged company.
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Levy
- To collect or assess money that is due.
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Lewis Ranieri
- Former bond trader and former vice chairman of Salomon Brothers who is credited with introducing securitization to the financial world. Initially, mortgage-backed securities (MBS) were only acknowledged by a handful of states as legitimate investments, but Ranieri's actions eventually led to federal government measures that supported these securities as a valid investment asset class, leading to the development of the bond market.
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Liability
- A company's legal debts or obligations that arise during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services.
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Liability Driven Investment - LDI
- A form of investing in which the main goal is to gain sufficient assets to meet all liabilities, both current and future. This form of investing is most prominent with defined-benefit pension plans, whose liabilities can often reach into the billions of dollars for the largest of plans.
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Liability Insurance
- Any type of insurance policy that protects an individual or business from the risk that they may be sued and held legally liable for something such as malpractice, injury or negligence. Liability insurance policies cover both legal costs and any legal payouts for which the insured would be responsible if found legally liable. Intentional damage and contractual liabilities are typically not covered in these types of policies.
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Liability Ledger
- The central file that contains a comprehensive list of all of a bank's loans and borrower discounts. This ledger can be subordinate to a bank's general ledger accounting system that is stored on computer. The liability ledger is stored in the bank's loan department.
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Liability Management
- Use and management of liabilities, such as customer deposits, by a bank in order to facilitate lending and allow for balanced growth. Management of money accepted from depositors as well as funds secured from other institutions constitute liability management. It also involves hedging against changes in interest rates and controlling the gap between the maturities of assets and liabilities.
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Liability Matching
- An increasingly popular investment strategy that attempts to time future assets sales and income streams to match against expected future expenses. The strategy has become widely embraced among pension fund managers, who attempt to minimize a portfolio's liquidation risk by ensuring asset sales, interest and dividend payments correspond with expected payments to pension recipients. This stands in contrast to simpler strategies that attempt to maximize return without regard to withdrawal timing.
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Liability Swap
- An exchange of debt related interest rates between two parties - usually large corporations. In a liability swap, two currently identical (in nominal value) cash flows are exchanged. Usually a variable (floating) rate is exchanged for a fixed rate of income. Swaps are undertaken because each company receives a better rate of interest by trading with the other than they would if they chose a more traditional financing route.
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Liar Loan
- A category of mortgages known as low-documentation or no-documentation mortgages that have been abused to the point where the loans are sometimes referred to as liar loans. On certain low-documentation loan programs, such as stated income/stated asset (SISA) loans, income and assets are simply stated on the loan application. On other loan programs, such as no income/no asset (NINA) loans, no income and assets are given on the loan application form. These loan programs open the door for unethical behavior by unscrupulous borrowers and lenders.
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LIBOR Curve
- A graphical representation of various maturities of the London Interbank Offered Rate (LIBOR), which is the short-term floating rate at which large banks with high credit ratings lend to each other. The LIBOR curve is usually depicted for short-term periods of less than one year.
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Licensed International Financial Analyst - LIFA
- A professional designation provided by the International Research Association (IRA) designed for investment professionals throughout the world. The Licensed International Financial Analyst (LIFA) designation attempts to help candidates attain higher levels of professionalism and ethics in the global industry of investment management and analysis. The LIFA examinations require an in-depth knowledge of investment principles, along with an understanding of global capital markets.
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Licensing Agreement
- This term refers to a written agreement entered into by the contractual owner of a property or activity giving permission to another to use that property or engage in an activity in relation to that property. The property involved in a licensing agreement can be real, personal or intellectual. Almost always, there will be some consideration exchanged between the licensor and the licensee.
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Lien
- When a creditor or bank has the right to sell the mortgaged or collateral property of those who fail to meet the obligations of a loan contract.
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Life Annuity
- An insurance product that features a predetermined periodic payout amount until the death of the annuitant. These products are most frequently used to help retirees budget their money after retirement. Typically, the annuitant pays into the annuity on a periodic basis when he or she is still working. However, annuitants may also buy the annuity product in one large purchase. When the annuitant retires, the annuity makes periodic (usually monthly) payouts to the annuitant, providing a reliable source of income. When a triggering event (such as death) occurs, the periodic payments from the annuity usually cease.
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Life Cap
- The maximum amount that the interest rate on an adjustable rate loan can increase over the term of the loan.
A life cap can be expressed as an absolute interest rate - such as a maximum lifetime rate of 12%, which is called an interest rate ceiling - or as a maximum percentage change in the interest rate from the initial interest rate on the loan. When the life cap is expressed as a maximum percentage change from the initial interest rate, it can also apply to interest rate decreases.
- The maximum amount that the interest rate on an adjustable rate loan can increase over the term of the loan.
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Life Cycle
- The course of events that brings a new product into existence and follows its growth into a mature product and into eventual critical mass and decline. The most common steps in the life cycle of a product include the following phases:
• Product Development Phase - Includes market analysis, product design, conception, and testing
• Market Introduction Phase - Initial release of the product, usually marked with high levels of advertising
• Growth Phase - Sales growth begins to accelerate, characterized with increasing sales year over year. As production levels increase, gross margins should steadily decline, making the product less profitable on a per-unit basis. An increase in competition is probable.
• Maturity Phase - The product will reach the upper bounds of its demand cycle and further spending on advertising will have little to no effect on increasing demand.
• Decline/Stability Phase - This is where a product has reached or passed its point of highest demand. At this point, demand will either remain steady or slowly decline as a newer product makes it obsolete.
- The course of events that brings a new product into existence and follows its growth into a mature product and into eventual critical mass and decline. The most common steps in the life cycle of a product include the following phases:
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Life Expectancy
- 1. The age until which a person is expected to live.
2. The remaining number of years an individual is expected to live, based on IRS issued life expectancy tables. The life expectancy, for required minimum distribution (RMD) calculation purposes, is determined by the current age of the individual.
- 1. The age until which a person is expected to live.
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Life Income Plan
- A type of philanthropic strategy where cash or property is transferred into a pooled income fund sponsored by the receiving charity in return for a lifetime of guaranteed income for the donor. The charity assumes full control and ownership of the donated assets upon the donor's death or upon the death of the last named beneficiary.
Life income plans are generally appropriate for wealthy investors with large estates seeking an immediate tax deduction, although some charities specify a minimum initial contribution of as little as $5,000.
- A type of philanthropic strategy where cash or property is transferred into a pooled income fund sponsored by the receiving charity in return for a lifetime of guaranteed income for the donor. The charity assumes full control and ownership of the donated assets upon the donor's death or upon the death of the last named beneficiary.
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Life Insurance
- A protection against the loss of income that would result if the insured passed away. The named beneficiary receives the proceeds and is thereby safeguarded from the financial impact of the death of the insured.
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Life Option
- An annuitization-method option for a typical annuity offered by an insurance company with which the annuitant chooses to receive regular income payments from his or her annuity account for life. The insurance company guarantees that the annuitant will receive payments for the rest of his or her life, and structures the payment amounts to provide room for the insurance company's profit margin.
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Life Settlement
- The selling of one's life insurance policy to a third party for a one time cash payment. The purchaser then becomes the beneficiary of the policy and begins paying the premiums. Typically the purchaser is an experienced institutional investor, and policies will have face amounts in excess of $250,000.
A life settlement is similar to a "viatical settlement".
- The selling of one's life insurance policy to a third party for a one time cash payment. The purchaser then becomes the beneficiary of the policy and begins paying the premiums. Typically the purchaser is an experienced institutional investor, and policies will have face amounts in excess of $250,000.
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Life With Guaranteed Term
- An annuitization-method option with which the annuitant chooses to receive regular income payments that are guaranteed to last the rest of his or her life but also guarantees income payments for a minimum number of years (the term) following the start of the annuitization period - even if the annuitant dies before the end of the term.
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Life-Cycle Fund
- A special category of balanced, or asset-allocation, mutual fund in which the proportional representation of an asset class in a fund's portfolio is automatically adjusted during the course of the fund's time horizon. The automatic portfolio adjustment run from a position of higher risk to one of lower risk as the investor ages and/or nears retirement.
Also referred to as "age-based funds".
- A special category of balanced, or asset-allocation, mutual fund in which the proportional representation of an asset class in a fund's portfolio is automatically adjusted during the course of the fund's time horizon. The automatic portfolio adjustment run from a position of higher risk to one of lower risk as the investor ages and/or nears retirement.
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Lifeline Account
- A streamlined checking or savings account designed for low-income customers. These accounts will usually have low balance requirements and no monthly fees, and are offered by large banking institutions as a way to offer basic banking services to the broad public. Some states mandate that lifeline accounts be available within the state.
Basic features such as check writing will be available, but will typically be limited by a monthly quota. Other electronic services may also be limited unless the account holder pays additional fees.
- A streamlined checking or savings account designed for low-income customers. These accounts will usually have low balance requirements and no monthly fees, and are offered by large banking institutions as a way to offer basic banking services to the broad public. Some states mandate that lifeline accounts be available within the state.
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Lifelong Learning Plan
- A provision applicable to the Canadian Registered Retirement Savings Plan (RRSP). The plan allows RRSP contributors a non-taxable temporary withdrawal of up to $20,000 from their accounts in order to finance their education or that of their spouse. The provision is subject to limitations, such as a $10,000 annual withdrawal limit and a maximum repayment period of 10 years, after which the ability to recontribute the borrowed sum is lost.
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Lifestyle Creep
- A situation where people's lifestyle or standard of living improves as their discretionary income rises either through an increase in income or decrease in costs. As lifestyle creep occurs, and more money is spent on lifestyle, former luxuries are now considered necessities.
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Lifestyle Fund
- An investment fund featuring an asset mix determined by the level of risk and return that is appropriate for an individual investor. Factors that determine this mix include an investor's age, level of risk aversion, the investment's purpose and the length of time until the principal will be withdrawn.
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Lifetime Cap
- The maximum interest rate on an adjustable-rate mortgage (ARM) that may be charged at any point over the life of the mortgage. The lifetime cap is usually expressed as a percentage increase from an initial interest rate. For example, if a fixed period ARM has an initial fixed interest rate of 5% and a lifetime cap of 5%, the maximum interest rate that may be charged is 10%. Lifetime caps are usually part of a mortgage's interest rate cap structure which consists of initial, periodic and life caps.
- The maximum interest rate on an adjustable-rate mortgage (ARM) that may be charged at any point over the life of the mortgage. The lifetime cap is usually expressed as a percentage increase from an initial interest rate. For example, if a fixed period ARM has an initial fixed interest rate of 5% and a lifetime cap of 5%, the maximum interest rate that may be charged is 10%. Lifetime caps are usually part of a mortgage's interest rate cap structure which consists of initial, periodic and life caps.
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Lifetime Cost
- A total of all other costs relating to a good over its expected lifetime in addition to the amount paid to acquire it. These extra expenses, which usually cover costs involved with maintaining the good, often when added together over time, can be greater than the original purchase price of the underlying good.
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Lifetime Learning Credit
- A federal initiative whereby a person is eligible for a non-refundable credit for a specific amount spent on higher education tuition and fees during the year.
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LIFO Liquidation
- When a company using the LIFO (Last In, First Out) method of inventory costing liquidates their older LIFO inventory. A LIFO liquidation would occur if current sales are higher than current purchases, as a result, any inventory not sold in previous periods must be liquidated.
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Like-For-Like Sales
- The portion of current sales achieved through activities that are comparable to the activities of the previous year.
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Like-Kind Exchange
- A tax deferred exchange that allows for the disposal of an asset and the acquisition of another similar asset without generating a tax liability from the sale of the first asset. This can include the exchange of one business for another or one real estate investment property for another property. An 8824 form must be filed with the IRS detailing the terms of the deal.
This is also known as a "1031 exchange".
- A tax deferred exchange that allows for the disposal of an asset and the acquisition of another similar asset without generating a tax liability from the sale of the first asset. This can include the exchange of one business for another or one real estate investment property for another property. An 8824 form must be filed with the IRS detailing the terms of the deal.
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Like-Kind Property
- Any two assets or properties that are considered to be the same type, making an exchange between them tax free. To qualify as like kind, two assets must be of the same type (e.g. two pieces of residential real estate), but do not have to be of the same quality.
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Lilly Ledbetter Fair Pay Act
- A law signed by Congress on January 29, 2009, that restored worker protections against pay discrimination. The Lilly Ledbetter Fair Pay Act allows individuals who face pay discrimination to seek rectification under federal anti-discrimination laws. The law clarifies that discrimination based on age, religion, national origin, race, sex and disability will "accrue" every time the employee receives a paycheck that is deemed discriminatory.
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Lima Stock Exchange (LMA) .LM
- The major securities exchange market in Peru, the Lima Stock Exchange (in Spanish, the Bolsa de Valores de Lima) began operations in 1861 but did not trade in any type of stocks for the first 30 years. The Exchange was re-launched in 1898. Business is conducted both on a trading floor and through an electroncic system that was established in 1995.
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Limit Down
- The maximum amount by which the price of a commodity futures contract may decline in one trading day.
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Limit Move
- The largest amount of change that the price of a commodity futures contract is allowed to undergo. It is not possible to trade a futures contract at a price either above or below the futures contract price after a limit move. The limit price is set by the exchange on which the futures contract trades.
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Limit Order
- An order placed with a brokerage to buy or sell a set number of shares at a specified price or better. Limit orders also allow an investor to limit the length of time an order can be outstanding before being canceled.
Depending on the direction of the position, limit orders are sometimes referred to more specifically as a buy limit order, or a sell limit order.
- An order placed with a brokerage to buy or sell a set number of shares at a specified price or better. Limit orders also allow an investor to limit the length of time an order can be outstanding before being canceled.
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Limit Order Book
- A record of unexecuted limit orders maintained by the specialist.
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Limit Up
- The maximum amount by which the price of a commodity futures contract may advance in one trading day.
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Limit-On-Close Order
- A type of limit order to buy or sell shares near the market close only if the closing price is trading better than the limit price. This order is an expansion of the market-on-close order, adding to it a limit condition, which places a maximum on the entry price and minimum on the selling price.
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Limit-On-Open Order
A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of order is good only for the market opening and does not last for the whole trading day.
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Limited Company - LC
- A form of incorporation that limits the amount of liability undertaken by the company's shareholders. The naming convention for this type of corporate structure is commonly used in the United Kingdom. It is commonly known as a limited liability company (LLC) in the United States and other parts of the world.
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Limited Liability
- A type of liability that does not exceed the initial amount a person invested into a partnership.
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Limited Liability Company - LLC
- A corporate structure whereby the shareholders of the company have a limited liability to the company's actions.
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Limited Partner
- A partner in a partnership whose liability is limited to the extent of the partner's share of ownership. Limited partners generally do not have any kind of management responsibility in the partnership in which they invest and are not responsible for its debt obligations. For this reason, limited partners are not considered to be material participants.
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Limited Partnership - LP
- Two or more partners united to conduct a business jointly, and in which one or more of the partners is liable only to the extent of the amount of money that partner has invested. Limited partners do not receive dividends, but enjoy direct access to the flow of income and expenses.
This term is also referred to as a "limited liability partnership" (LLP).
- Two or more partners united to conduct a business jointly, and in which one or more of the partners is liable only to the extent of the amount of money that partner has invested. Limited partners do not receive dividends, but enjoy direct access to the flow of income and expenses.
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Limited Partnership Unit
- An ownership unit in a publicly traded limited partnership, or master limited partnership (MLP). This trust gives the unit holder a stake in the income generated by the partnership company. A MLP often distributes all available cash flow from operations to unit holders after the deduction of maintenance capital.
Also referred to as "master limited partnership units" and "limited partner units".
- An ownership unit in a publicly traded limited partnership, or master limited partnership (MLP). This trust gives the unit holder a stake in the income generated by the partnership company. A MLP often distributes all available cash flow from operations to unit holders after the deduction of maintenance capital.
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Limited Power Of Attorney - LPOA
- An authorization form used in the professional money management field which gives a portfolio manager discretion to perform certain functions in a client's account, such as:
- trading authorization,
- disbursement authority,
- fee-payment authority and
- have forms sent straight to broker, such as proxy statements, tender offers, etc.
The "limited" in LPOA refers to the fact that certain critical account functions are still only available to the account holder, such as cash withdrawals, a change of beneficiary or other major account actions.
- An authorization form used in the professional money management field which gives a portfolio manager discretion to perform certain functions in a client's account, such as:
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Limited Purpose Trust Company
- A trust company that has been chartered by the state to perform specific trust functions. These functions can include acting as a depositor or safekeeper for securities or mortgages. The Participants Trust Company is an example of a mortgage depositor trust.
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Limited Recourse Debt
- A debt in which the creditor has limited claims on the loan in the event of default. Limited recourse debt sits in between secured bonds and unsecured bonds in terms of the backing behind the loan. Often a limited recourse debt contract is structured so that the debt transitions to unsecured, or "non-recourse", debt pending the completion of a specific event. That event may be the completion of a project or the establishment of a specific revenue stream for which the debt was issued.
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Limited Risk
- The risk of an investment that has a predetermined maximum downside potential, which is usually the initial amount invested.
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Limited Service Bank
- Any type of banking business facility that is located separately from the bank's main location. At these locations, banks may take customer deposits, but the bank cannot make loans or offer trust services there. Limited service banks only exist in unit banking states, where operation of more than a single full-service bank branch is prohibited.
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Limited Trading Authorization
- A level of trading authorization that gives an agent or broker the power to place orders or make inquiries concerning a client's account. Limited trading authorization allows the agent to act on behalf of an investor, but does not allow for the dispersement of account funds.
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Lindsay Lohan Stock Index
- A stock index comprised of companies associated with actress Lindsay Lohan. Investors might correlate the popularity of Lohan with increased sales surrounding her related products. Firms involved with Lohan endorsements, advertising or movies are included in the index.
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Line Chart
- A style of chart that is created by connecting a series of data points together with a line. This is the most basic type of chart used in finance and it is generally created by connecting a series of past prices together with a line.
- A style of chart that is created by connecting a series of data points together with a line. This is the most basic type of chart used in finance and it is generally created by connecting a series of past prices together with a line.
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Line Of Credit - LOC
- An arrangement between a financial institution, usually a bank, and a customer that establishes a maximum loan balance that the bank will permit the borrower to maintain. The borrower can draw down on the line of credit at any time, as long as he or she does not exceed the maximum set in the agreement.
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Linear Price Scale
- A type of scale used on a chart that is plotted in such a way that the values on the scale are spaced equidistantly. Each unit change is represented by the same vertical distance on the chart, regardless of what price level the asset is at when the change occurs. This price scale is mainly used in short-term trading, and it is often used by traders of commodity futures. Contrast this to "logarithmic price scale".
- A type of scale used on a chart that is plotted in such a way that the values on the scale are spaced equidistantly. Each unit change is represented by the same vertical distance on the chart, regardless of what price level the asset is at when the change occurs. This price scale is mainly used in short-term trading, and it is often used by traders of commodity futures. Contrast this to "logarithmic price scale".
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Linear Relationship
- A statistical term used to describe the relationship between a variable and a constant. Linear relationships can be expressed in a graphical format where the variable and the constant are connected via a straight line or in a mathematical format where the independent variable is multiplied by the slope coefficient, added by a constant, which determines the dependent variable.
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Linearly Weighted Moving Average
- A type of moving average that assigns a higher weighting to recent price data than does the common simple moving average. This average is calculated by taking each of the closing prices over a given time period and multiplying them by its certain position in the data series. Once the position of the time periods have been accounted for they are summed together and divided by the sum of the number of time periods.
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Linkage
- Linkage occurs when an investor is able to purchase a security on one financial exchange and sell it on another. Certain depositary receipts, such as American Depositary Receipts (ADRs), allow for linkage, which means that an investor can purchase shares of a company on a foreign exchange, such as the Toronto Stock Exchange, and then sell those shares on a domestic exchange, such as the New York Stock Exchange.
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Linked Exchange Rate System
- A system of managing a nation's currency and exchange rate by linking the national currency to another base currency that is held at a fixed ratio in deposit at domestic banks.
Once the exchange rate is set, there is typically no interference from the government or through monetary policy decisions that will affect the exchange rate. Currency is only issued when there are reserves in the linked currency to back it up. If the exchange rate begins to shift from the fixed ratio, currency is immediately added to or taken out of circulation to bring the ratio back into balance.
- A system of managing a nation's currency and exchange rate by linking the national currency to another base currency that is held at a fixed ratio in deposit at domestic banks.
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Linked Savings Account
- Any type of bank savings account that is linked by account number to a NOW or checking account. These are offered for the convenience of the customer, who can keep the majority of the funds in the savings account and move money over into the demand account as needed. This can also qualify the customer for reduced service charges or free checking.
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Lintner's Model
- A model stating that dividend policy has two parameters: (1) the target payout ratio and (2) the speed at which current dividends adjust to the target.
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Lipper Indexes
- A series of indexes that tracks the financial performance of different types of mutual funds. Lipper, which is owned by Reuters, allows investors to benchmark the performance of a mutual fund investment against an index of 30 funds that also belong in that investment category.
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Liquefied Natural Gas
- The liquefied state of natural gas, which is created by cooling the gas to about -260°fahrenheit. Energy companies change the state of natural gas into liquid form mainly for ease of transport.
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Liquid Asset
- An asset that can be converted into cash quickly and with minimal impact to the price received. Liquid assets are generally regarded in the same light as cash because their prices are relatively stable when they are sold on the open market.
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Liquid Certificate Of Deposit
- A certificate of deposit (CD) that allows withdrawls to be made, without penalty, from the account. The major upside to this type of CD is that your money is accessible to you if you need it throughout the term. The downside is that the interest rate is generally lower than that of a traditional CD.
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Liquid Market
- A market with many bid and ask offers. The market is characterized by high liquidity, low spreads, and low volatility.
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Liquid Yield Option Note - LYON
- A zero coupon bond that is callable (by issuer), putable (by investor), and convertible. LYONs are synthetic products that are financially engineered by Merrill Lynch.
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Liquidate
- 1. To convert assets into cash or equivalents by selling them on the open market.
2. When an entity chooses or is forced by a legal judgment or contract to turn assets into a "liquid" form (cash).
- 1. To convert assets into cash or equivalents by selling them on the open market.
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Liquidated Damages
- Present in certain legal contracts, this provision allows for the payment of a specified sum should one of the parties be in breach of contract.
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Liquidating Dividend
- Payment by a firm to its owners from capital rather than from earnings.
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Liquidating Market
- A type of securities market in which there is broad-based selling of most securities at the same time, giving the effect of low and decreasing prices on most securities while selling volumes remain high. A liquidating market is one in which the majority of investors are leaving or selling off their securities traded in that market, so that overall there is a general liquidation of securities in that market.
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Liquidation
- 1. When a business or firm is terminated or bankrupt, its assets are sold and the proceeds pay creditors. Any leftovers are distributed to shareholders.
2. Any transaction that offsets or closes out a long or short position.
- 1. When a business or firm is terminated or bankrupt, its assets are sold and the proceeds pay creditors. Any leftovers are distributed to shareholders.
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Liquidation Level
- In forex trading, the specific value of a trader's account below which the liquidation of the trader's positions is automatically triggered and executed at the best available exchange rate at the time. The liquidation level is expressed as a percentage value of assets. If a forex trader's positions go against him or her, his or her account will eventually reach the liquidation level, unless the trader contributes further margin to top up his or her account.
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Liquidator
- In the most general sense, a person or entity that liquidates something. More specifically, a liquidator refers to an officer that is specially appointed to wind up the affairs of a company. The liquidator is legally empowered to act on behalf of the company in various capacities.
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Liquidity
- 1. The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can by easily bought or sold, are known as liquid assets.
2. The ability to convert an asset to cash quickly. Also known as "marketability".
There is no specific liquidity formula, however liquidity is often calculated by using liquidity ratios.
- 1. The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can by easily bought or sold, are known as liquid assets.
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Liquidity Adjustment Facility
- A tool used in monetary policy that allows banks to borrow money through repurchase agreements. This arrangement allows banks to respond to liquidity pressures and is used by governments to assure basic stability in the financial markets.
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Liquidity Crisis
- A negative financial situation characterized by a lack of cash flow. For a single business, a liquidity crisis occurs when the otherwise solvent business does not have the liquid assets (i.e., cash) necessary to meet its short-term obligations, such as repaying its loans, paying its bills and paying its employees. If the liquidity crisis is not solved, the company must declare bankruptcy. An insolvent business can also have a liquidity crisis, but in this case, restoring cash flow will not prevent the business's ultimate bankruptcy.
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Liquidity Cushion
- A reserve fund for a company or person containing money market and highly liquid investments.
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Liquidity Event
- An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an exit strategy for an illiquid investment. Liquidity events are typically used in conjunction with venture capital/angel investors or private equity firms, which will aim to reach one within a reasonable amount of time after initially making an investment.
The most common liquidity events are initial public offerings (IPOs) and direct acquisitions by other corporations or private equity firms.
- An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an exit strategy for an illiquid investment. Liquidity events are typically used in conjunction with venture capital/angel investors or private equity firms, which will aim to reach one within a reasonable amount of time after initially making an investment.
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Liquidity Path
- The path taken by a company to provide liquidity for company founders or owners. The most common liquidity paths are through mergers and acquisitions to a larger company, and through initial pubic offerings (IPOs) of stock to investors.
Without a path to liquidity, private company owners may not be able to convert their ownership in the company to any other means of currency or investment.
- The path taken by a company to provide liquidity for company founders or owners. The most common liquidity paths are through mergers and acquisitions to a larger company, and through initial pubic offerings (IPOs) of stock to investors.
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Liquidity Preference Theory
- The hypothesis that forward rates offer a premium over expected future spot rates.
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Liquidity Premium
- A premium that investors will demand when any given security can not be easily converted into cash, and converted at the fair market value. When the liquidity premium is high, then the asset is said to be illiquid, which will cause prices to fall, and interest rates to rise.
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Liquidity Ratios
- A class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts.
- A class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts.
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Liquidity Risk
- The risk stemming from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss.
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Liquidity Squeeze
- When concern about the short-term availability of money causes reluctance among financial institutions to lend out money from their reserves. This hold on reserves causes the interbank market rate to rise, making it more expensive for banks to borrow from each other. Ultimately, this causes credit standards to tighten, making it more difficult and expensive for consumers to receive loans.
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Liquidity Trap
- A situation in which prevailing interest rates are low and savings rates are high, making monetary policy ineffective. In a liquidity trap, consumers choose to avoid bonds and keep their funds in savings because of the prevailing belief that interest rates will soon rise. Because bonds have an inverse relationship to interest rates, many consumers do not want to hold an asset with a price that is expected to decline.
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Listed
- Being included and traded on a given exchange. Most exchanges have specific requirements which companies must meet in order to be listed and continue to stay listed.
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Listed Option
- An option that is sold on a registered exchange, such as the Chicago Board Options Exchange (CBOE) or Euronext. Listed options cover securities such as common stocks, ETFs, market indexes and commodities. All listed options have stated exercise prices and expiration dates.
Also known as "exchange-traded options".
- An option that is sold on a registered exchange, such as the Chicago Board Options Exchange (CBOE) or Euronext. Listed options cover securities such as common stocks, ETFs, market indexes and commodities. All listed options have stated exercise prices and expiration dates.
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Listed Security
- Securities that have been accepted for trading purposes by a recognized and regulated exchange.
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Listing Requirements
- Various standards that are established by stock exchanges (such as the NYSE) to control membership in the exchange. Companies wishing to issue their stock on a given exchange must meet its listing requirements and continue to do so for as long as they are on the exchange.
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Little Board
- A slang term primarily referring to the American Stock Exchange (AMEX). It can also describe any exchange that is not the New York Stock Exchange (NYSE). Little board was originally used to refer to the New York Consolidated Stock and Petroleum Exchange, which closed its doors in the 1920s.
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Living Wage
- A theoretical wage level that allows the earner to afford adequate shelter, food and the other necessities of life. The living wage should be substantial enough to ensure that no more than 30% of it needs to be spent on housing. The goal of the living wage is to allow employees to earn enough income for a satisfactory standard of living.
- A theoretical wage level that allows the earner to afford adequate shelter, food and the other necessities of life. The living wage should be substantial enough to ensure that no more than 30% of it needs to be spent on housing. The goal of the living wage is to allow employees to earn enough income for a satisfactory standard of living.
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Living Will
- A legal document that sets out the medical care an individual, or the principal, wants or does not want in the event that he or she becomes incapable of communicating his or her wishes.
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LKR (Sri Lankan Rupee)
- The currency symbol for the Sri Lankan rupee (LKR), the currency for the Democratic Socialist Republic of Sri Lanka (Ceylon prior to 1972), an island nation off the southern coast of India. The Sri Lankan rupee is made up of 100 cents and is often presented with the symbol Rp. or Rs., in the form Rp. 50 for 50 rupees.
The rupee can also be presented with SLRp. or SLRs., rather than Rp. or Rs., to differentiate it from other currencies denominated in rupees.
- The currency symbol for the Sri Lankan rupee (LKR), the currency for the Democratic Socialist Republic of Sri Lanka (Ceylon prior to 1972), an island nation off the southern coast of India. The Sri Lankan rupee is made up of 100 cents and is often presented with the symbol Rp. or Rs., in the form Rp. 50 for 50 rupees.
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LNG
- LNG, or liquefied natural gas, consists mostly of methane and is cooled to approximately -256 degrees Farenheit so that it can be transported from countries that have more natural gas than they need to countries that use more natural gas than they produce. In its liquefied state, natural gas takes up 1/600th of the space, making it much easier to ship and store when pipeline transport is not feasible. As world energy consumption increases, experts anticipate that the LNG trade will grow in importance.
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Load
- A sales charge or commission charged to an investor when buying or redeeming shares in a mutual fund. The fee may be a one-time charge at the time the investor buys into the mutual fund (front-end load), when the investor redeems the mutual fund shares (back-end load), or on an annual basis as a 12b-1 fee.
- A sales charge or commission charged to an investor when buying or redeeming shares in a mutual fund. The fee may be a one-time charge at the time the investor buys into the mutual fund (front-end load), when the investor redeems the mutual fund shares (back-end load), or on an annual basis as a 12b-1 fee.
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Load Fund
- A mutual fund that comes with a sales charge or commission. The fund investor pays the load, which goes to compensate a sales intermediary (broker, financial planner, investment advisor, etc.) for his or her time and expertise in selecting an appropriate fund for the investor.
- A mutual fund that comes with a sales charge or commission. The fund investor pays the load, which goes to compensate a sales intermediary (broker, financial planner, investment advisor, etc.) for his or her time and expertise in selecting an appropriate fund for the investor.
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Load Spread Option
- A method of collecting the annual fees from investors in load funds through periodic deductions. These periodic deductions often are taken off of regular investor contributions to the fund to spread out the burden of the load fees over time.
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Load-Waived Funds
- A share class of a mutual fund that does not require its investors to pay fees (such as front-end loads). Owning shares in a load-waived fund is a benefit to investors because it allows them to retain all of their investment's return instead of losing a portion of it to fees. In most cases, mutual fund companies will limit the number of load-waived funds available to only certain investors.
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Loan
- The act of giving money, property or other material goods to a another party in exchange for future repayment of the principal amount along with interest or other finance charges. A loan may be for a specific, one-time amount or can be available as open-ended credit up to a specified ceiling amount.
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Loan Application Fee
- A fee charged to process an application for a loan, such as a home mortgage from a lender or mortgage broker. Loan application fees are charged to cover some of the costs involved in processing the application including credit checks, property appraisals and basic administrative costs.
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Loan Commitment
- A loan amount that may be drawn down, or is due to be contractually funded in the future. Loan commitments are found at commercial banks and other lending institutions and consist of both open-end and closed-end loans. Open-end loan commitments act like revolving credit lines, whereby if a portion of the loan is paid off, the principle repayment amount is added back to the allowable loan limit. Closed-end loans are reduced once any repayments are made.
Banks and investment shops must account for the value of outstanding loan commitments so that funds are available should the borrower request them. They represent a future obligation in full, even though a percentage of the notional loan amounts will never be utilized by the borrowers themselves.
Also known as "unfunded loan commitments," because the total capital outlay is not provided by the lender up front.
- A loan amount that may be drawn down, or is due to be contractually funded in the future. Loan commitments are found at commercial banks and other lending institutions and consist of both open-end and closed-end loans. Open-end loan commitments act like revolving credit lines, whereby if a portion of the loan is paid off, the principle repayment amount is added back to the allowable loan limit. Closed-end loans are reduced once any repayments are made.
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Loan Committee
- The lending or management committee of a bank or other lending institution that analyzes and subsequently approves or rejects any loan that the initial loan officer does not have the authority to approve. First, the committee ensures that the loan meets standard lending policy. Assuming the loan meets this criteria, the committee can agree to fund and disburse the loan with a binding commitment.
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Loan Constant
- The required annual cash flow needed to service both the principal and interest upon a loan obligation.
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Loan Credit Default Swap (LCDS)
- A type of credit derivative in which the credit exposure of an underlying loan is swapped between two parties. A loan credit default swap's structure is the same as a regular credit default swap, except that the underlying reference entity is limited strictly to syndicated secured loans, rather than any loan or bond.
Also know as a "loan-only credit default swap".
- A type of credit derivative in which the credit exposure of an underlying loan is swapped between two parties. A loan credit default swap's structure is the same as a regular credit default swap, except that the underlying reference entity is limited strictly to syndicated secured loans, rather than any loan or bond.
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Loan Grading
- A system of credit scoring that assigns a rating of asset quality to a portfolio of loans. Loan grading is based upon a comparison of all loans that are outstanding within a given portfolio. This system places loans into one of six categories, ranked from most stable to complete write-off, or unreviewed.
- A system of credit scoring that assigns a rating of asset quality to a portfolio of loans. Loan grading is based upon a comparison of all loans that are outstanding within a given portfolio. This system places loans into one of six categories, ranked from most stable to complete write-off, or unreviewed.
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Loan Life Coverage Ratio - LLCR
- A financial ratio used to estimate the ability of the borrowing company to repay an outstanding loan. The Loan Life Coverage Ratio (LLCR) is calculated by dividing the net present value (NPV) of the money available for debt repayment by the amount of senior debt owed by the company.
- A financial ratio used to estimate the ability of the borrowing company to repay an outstanding loan. The Loan Life Coverage Ratio (LLCR) is calculated by dividing the net present value (NPV) of the money available for debt repayment by the amount of senior debt owed by the company.
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Loan Loss Provision
- An expense set aside as an allowance for bad loans (customer defaults, or terms of a loan have to be renegotiated, etc).
Also know as a "valuation allowance" or "valuation reserve".
- An expense set aside as an allowance for bad loans (customer defaults, or terms of a loan have to be renegotiated, etc).
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Loan Modification
- A modification to an existing loan made by a lender in response to a borrower's long-term inability to repay the loan. Loan modifications typically involve a reduction in the interest rate on the loan, an extension of the length of the term of the loan, a different type of loan or any combination of the three. A lender might be open to modifying a loan because the cost of doing so is less than the cost of default.
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Loan Modification Specialist
- A mortgage specialist who deals specifically with loan modifications. Loan modification specialists work with borrowers who are close to or have defaulted on their mortgage. A loan modification is simply an adjustment made to the terms of the existing loan to reduce the probability of a borrower defaulting. Common adjustments include: interest rate reductions, extension of length of loan term, change to loan type or a mix of all adjustments.
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Loan Note
- An extended form of an IOU from one party to another that enables a payee to receive payments (possibly with interest) over a set period of time, ending with the date at which the entire loan is to be repaid.
Loan notes are usually provided in lieu of cash at the payee's request.
- An extended form of an IOU from one party to another that enables a payee to receive payments (possibly with interest) over a set period of time, ending with the date at which the entire loan is to be repaid.
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Loan Officer
- Representatives of banks, credit unions and other financial institutions that find and assist borrowers in acquiring loans. Some specialized loan officers, called loan underwriters, analyze and assess the creditworthiness of potential borrowers to see if they qualify for a loan. Loan officers usually work on either consumer or mortgage loans.
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Loan Participation Note - LPN
- A fixed-income security that permits investors to buy portions of an outstanding loan or package of loans. LPN holders participate, on a pro rata basis, in collecting interest and principal payments. Banks or other financial institutions often enter into loan participation agreements with local businesses, and also offer loan participation notes as a type of short-term investment.
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Loan Production Office - LPO
- The area of a bank's operations that accepts applications for loans and arranges for business financing, but does not take deposits. Loan production offices (LPOs) are responsible for growing loan business for the bank.
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Loan Register
- A journal that chronicles the recording of time loans. The loan register lists when the loans are due, recorded in chronological order, and organizes the list by numbering the loans consecutively. They are used by loan officers to track the maturities of loans so that they can notify their customers that the loans are coming due.
They are also known as "maturity ticklers."
- A journal that chronicles the recording of time loans. The loan register lists when the loans are due, recorded in chronological order, and organizes the list by numbering the loans consecutively. They are used by loan officers to track the maturities of loans so that they can notify their customers that the loans are coming due.
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Loan Servicing
- The administration aspect of a loan from the time the proceeds are dispersed until the loan is paid off. This includes sending monthly payment statements and collecting monthly payments, maintaining records of payments and balances, collecting and paying taxes and insurance (and managing escrow and impound funds), remitting funds to the note holder, and following up on delinquencies.
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Loan Shark
- A person or entity that charges borrowers interest above an established legal rate. Depending on where a person lives, lenders typically cannot charge more than 60% interest per annum. A loan shark, then, would be someone who illegally charged interest over the state's legal limit, which could range up to, or even over, 100%.
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Loan Stock
Common or preferred stock shares that are used as collateral to secure a loan from another party. The loan will earn a fixed interest rate, much like a standard loan, and can be secured or unsecured. A secured loan stock may also be called a convertible loan stock if the loan stock can be directly converted to common shares under specified conditions and with a pre-determined conversion rate, as with an irredeemable convertible unsecured loan stock(ICULS).
This type of financing is also known as "portfolio loan stock financing".
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Loan Strip
- A type of commercial loan sale whereby funding for a long-term loan is acquired from other lenders. A loan strip is a share of a long-term loan (such as a five-year loan), in which the loan-strip holder receives the agreed-upon amount at maturity. The maturity is usually short-term (often 30 or 60 days). Under certain circumstances, these strips may be classified as borrowed amounts.
- A type of commercial loan sale whereby funding for a long-term loan is acquired from other lenders. A loan strip is a share of a long-term loan (such as a five-year loan), in which the loan-strip holder receives the agreed-upon amount at maturity. The maturity is usually short-term (often 30 or 60 days). Under certain circumstances, these strips may be classified as borrowed amounts.
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Loan Syndication
- The process of involving several different lenders in providing various portions of a loan.
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Loan To Value Ratio - LTV Ratio
- A lending risk assessment ratio that financial institutions and others lenders examine before approving a mortgage. Typically, assessments with high LTV ratios are generally seen as higher risk and, therefore, if the mortgage is accepted, the loan will generally cost the borrower more to borrow or he or she will need to purchase mortgage insurance.
Calculated as:
- A lending risk assessment ratio that financial institutions and others lenders examine before approving a mortgage. Typically, assessments with high LTV ratios are generally seen as higher risk and, therefore, if the mortgage is accepted, the loan will generally cost the borrower more to borrow or he or she will need to purchase mortgage insurance.
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Lobster Trap
- A strategy used by a target firm to prevent a hostile takeover. In a lobster trap, the company passes a provision preventing anyone with more than 10% ownership from converting convertible securities into voting stock.
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Local
- Traders on future exchanges who occasionally fill public orders, but mainly buy and sell for their own personal accounts.
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Local Tax
- An additional tax on top of federal and state taxes, usually collected in the form of property taxes.
Also called "municipal tax".
- An additional tax on top of federal and state taxes, usually collected in the form of property taxes.
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Lock In Profits
- Realizing the gains of a position, such as buying a stock, by exiting at a profit. By locking in, that portion of the investment is no longer exposed to risks. All profits are unrealized until the position is closed.
Also known as “realization.”
- Realizing the gains of a position, such as buying a stock, by exiting at a profit. By locking in, that portion of the investment is no longer exposed to risks. All profits are unrealized until the position is closed.
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Lock Limit
- Commonly associated with the futures market, a lock limit occurs when the trading price of a futures contract arrives at the exchanges predetermined limit price. At the lock limit, trades above or below the lock price are not executed.
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Lock-Up Agreement
- A legally binding contract between the underwriters and insiders of a company prohibiting these individuals from selling any shares of stock for a specified period of time. Lock-up periods typically last 180 days (six months) but can on occasion last for as little as 120 days or as long as 365 days (one year).
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Lock-Up Option
- A stock option offered by a target company to a white knight for additional equity or for the purchase of a valuable portion of their company.
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Lock-Up Period
- Window of time in which investors of a hedge fund or other closely-held investment vehicle are not allowed to redeem or sell shares. The lock-up period helps portfolio managers avoid liquidity problems while capital is put to work in sometimes illiquid investments.
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Lockbox Banking
- A service provided by banks to companies for the receipt of payment from customers. Under the service, the payments made by customers are directed to a special post office box, rather than going to the company. The bank will then go to the box, retrieve the payments, process them and deposit the funds directly into the company bank account.
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Lockdown
- A specified period when an employee of a public company is barred from selling - and occasionally buying - his or her company's stock.
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Locked In
- A situation where an investor is unwilling or unable to exit a position because of the regulations, taxes or penalties associated with doing so. This may be an investment vehicle, such as a retirement plan, which can not be accessed until a specified retirement date.
- A situation where an investor is unwilling or unable to exit a position because of the regulations, taxes or penalties associated with doing so. This may be an investment vehicle, such as a retirement plan, which can not be accessed until a specified retirement date.
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Locked Market
- A short-term situation occurring within a market where both the bid and ask are identical, resulting in no bid-ask spread.
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Locked-In Interest Rate
- Referring to a loan where the borrower and lender agree on a constant rate for a specified period. The lending institution promises to charge this locked in rate as a legal commitment. Sometimes there are certain qualifications or exceptions which, if not met over the life of the loan, will allow the lender to charge a higher rate.
Also known as a “fixed rate.”
- Referring to a loan where the borrower and lender agree on a constant rate for a specified period. The lending institution promises to charge this locked in rate as a legal commitment. Sometimes there are certain qualifications or exceptions which, if not met over the life of the loan, will allow the lender to charge a higher rate.
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Log-Normal Distribution
- A statistical distribution of random variables which have a normally distributed logarithm. Log-normal distributions can model a random variable X where log(X) is normally distributed.
These distributions, under multiplication and division, are self-replicating. That is to say, multiplying or dividing log-normal random variables will result in log-normal distributions.
- A statistical distribution of random variables which have a normally distributed logarithm. Log-normal distributions can model a random variable X where log(X) is normally distributed.
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Logarithmic Price Scale
- A type of scale used on a chart that is plotted in such a way that two equivalent percent changes are represented by the same vertical distance on the scale, regardless of what the price of the asset is when the change occurs. The distance between the numbers on the scale decreases as the price of the underlying asset increases. This is the case because a $1 increase in price becomes less influential as the price heads higher since it now corresponds to less of a percentage change than it did when the price of the asset was at a lower level. Also referred to as a "log scale".
- A type of scale used on a chart that is plotted in such a way that two equivalent percent changes are represented by the same vertical distance on the scale, regardless of what the price of the asset is when the change occurs. The distance between the numbers on the scale decreases as the price of the underlying asset increases. This is the case because a $1 increase in price becomes less influential as the price heads higher since it now corresponds to less of a percentage change than it did when the price of the asset was at a lower level. Also referred to as a "log scale".
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Logistics
- The overall management of the way resources are moved to the areas where they are required.
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Lombard Rate
- The rate charged to banks by the German central bank for collateralized loan obligations.
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London Interbank Mean Rate - LIMEAN
- The mid-market rate in the London Interbank market, which is calculated by averaging the offer rate (LIBOR) and the bid rate (LIBID). The LIBOR is the rate at which funds are sold in the market, while the LIBID is the rate at which the funds are purchased in the market.
- The mid-market rate in the London Interbank market, which is calculated by averaging the offer rate (LIBOR) and the bid rate (LIBID). The LIBOR is the rate at which funds are sold in the market, while the LIBID is the rate at which the funds are purchased in the market.
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London Interbank Offered Rate - LIBOR
- An interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market. The LIBOR is fixed on a daily basis by the British Bankers' Association. The LIBOR is derived from a filtered average of the world's most creditworthy banks' interbank deposit rates for larger loans with maturities between overnight and one full year.
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London International Financial Futures And Options Exchange - LIFFE
- A futures and options exchange in London, England that was modeled after the Chicago Board of Trade and the Chicago Mercantile Exchange. Similar to its American counterparts, this exchange used to deal with futures, options and commodities contracts. However, in 2002, LIFFE was acquired by Euronext as part of its strategy to increase its presence as a derivatives market. LIFFE has been renamed Euronext.liffe.
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London Metal Exchange - LME
- A commodities exchange in London, England, that deals in metal futures. Contracts on the exchange include aluminum, copper and zinc. Trading on the LME can be done in three main ways: through open outcry, a telephone system between member companies or the LME Select, an electronic trading platform. The LME is a non-ferrous exchange, which means that iron and steel are not traded on the exchange.
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London Spot Fix
- A price per ounce for each of the precious metals (gold, silver, platinum and palladium) determined daily at
London spot fix is also referred to as "
- A price per ounce for each of the precious metals (gold, silver, platinum and palladium) determined daily at
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London Stock Exchange - LSE
- The primary stock exchange in the U.K. and the largest in Europe. Originated in 1773, the regional exchanges were merged in 1973 to form the Stock Exchange of Great Britain and Ireland, later renamed the London Stock Exchange (LSE). The Financial Times Stock Exchange (FTSE) 100 Share Index, or "Footsie", is the dominant index, containing 100 of the top blue chips on the LSE.
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Long (or Long Position)
- 1. The buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value.
2. In the context of options, the buying of an options contract.
Opposite of "short" (or short position).
- 1. The buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value.
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Long Bond
- A bond that matures in more than 10 years. When people refer to "the long bond," this typically is the 30-year U.S. treasury.
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Long Hedge
- A situation where an investor has to take a long position in futures contracts in order to hedge against future price volatility. A long hedge is beneficial for a company that knows it has to purchase an asset in the future and wants to lock in the purchase price. A long hedge can also be used to hedge against a short position that has already been taken by the investor.
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Long Jelly Roll
- An option strategy that aims to profit from a time value spread through the sale and purchase of two call and two put options, each with different expiration dates.
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Long Market Value
- The aggregate worth, in dollars, of a group of securities held in a cash or margin brokerage account, calculated using the prior trading day's closing prices of each security in the account.
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Long Put
- An options strategy in which a put option is purchased as a speculative play on a downturn in the price of the underlying equity or index. In a long put trade, a put option is purchased on the open exchange with the hope that the underling stock falls in price, thereby increasing the value of the options, which are "held long" in the portfolio.
The options can either be sold prior to expiration (for a profit or loss) or held to expiration, at which time the investor must purchase the stock at market prices, then sell the stock at the stated exercise price.
- An options strategy in which a put option is purchased as a speculative play on a downturn in the price of the underlying equity or index. In a long put trade, a put option is purchased on the open exchange with the hope that the underling stock falls in price, thereby increasing the value of the options, which are "held long" in the portfolio.
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Long Run
- In terms of operating activities, a period of time in which all costs are variable.
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Long Run Incremental Cost - LRIC
- Forward-looking incremental costs that can be accounted for by a company.
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Long Squeeze
- A long squeeze, which involves a single stock, occurs when a sudden drop in price incites further selling, pressuring long holders of the stock into selling their shares to protect against a dramatic loss. Less popular than its more famous brother, the short squeeze, long squeezes are most apt to be found in smaller, more illiquid stocks, where a few determined or panicking shareholders can create unwarranted price volatility in a short period of time.
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Long Straddle
- A strategy of trading options whereby the trader will purchase a long call and a long put with the same underlying asset, expiration date and strike price. The strike price will usually be at the money or near the current market price of the underlying security.
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Long Term
- Holding an asset for an extended period of time. Depending on the type of security, a long-term asset can be held for as little as one year or for as long as 30 years or more.
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Long The Basis
- An individual or company that owns or has purchased a commodity such as oil, gold or lumber and then hedges its position by selling futures contracts on the commodity owned. This gives commodity holders a guaranteed price that they can sell their commodities at if the market price moves against their underlying position.
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Long-Dated Asset
- A class of income-generating assets where the revenue stream is generated over a long period of time. Residential mortgages and 20-year bonds are examples of long-dated assets.
- A class of income-generating assets where the revenue stream is generated over a long period of time. Residential mortgages and 20-year bonds are examples of long-dated assets.
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Long-Legged Doji
- A type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
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Long-Run Average Total Cost - LRATC
- A business metric that represents the average cost per unit of output over the long run, where all inputs are considered to be variable.
Long-term unit costs are almost always less than short-term unit costs because in a long-term time frame, companies have the flexibility to change big components of their operations, such as factories, to achieve optimal efficiency. A goal of both company management and investors is to determine the lower bounds of LRATC.
- A business metric that represents the average cost per unit of output over the long run, where all inputs are considered to be variable.
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Long-Term Assets
- 1. The value of a company's property, equipment and other capital assets, minus depreciation. This is reported on the balance sheet.
2. A stock, bond or other asset that an investor plans to hold for a long period of time.
- 1. The value of a company's property, equipment and other capital assets, minus depreciation. This is reported on the balance sheet.
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Long-Term Capital Gain Or Loss
- A gain or loss from a qualifying investment owned for longer than 12 months and then sold. The amount of an asset sale that counts toward a capital gain or loss is the difference between the sale value and the purchase value. Long-term capital gains are assigned a lower tax rate than short-term capital gains in the United States.
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Long-Term Capital Management - LTCM
- A large hedge fund led by Nobel Prize-winning economists and renowned Wall Street traders that nearly collapsed the global financial system in 1998 as a result of high-risk arbitrage trading strategies.
The fund formed in 1993 and was founded by renowned Salomon Brothers bond trader John Meriwether.
- A large hedge fund led by Nobel Prize-winning economists and renowned Wall Street traders that nearly collapsed the global financial system in 1998 as a result of high-risk arbitrage trading strategies.
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Long-Term Care (LTC) Insurance
- Coverage that provides nursing-home care, home-health care, personal or adult day care usually for individuals above the age of 65 or with a chronic or disabling condition that needs constant supervision. LTC insurance offers more flexibility and options than many public assistance programs.
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Long-Term Debt
- Loans and financial obligations lasting over one year.
In the U.K., long-term debts are known as "long-term loans."
- Loans and financial obligations lasting over one year.
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Long-Term Debt To Capitalization Ratio
- A ratio showing the financial leverage of a firm, calculated by dividing long-term debt by the amount of capital available:
- A ratio showing the financial leverage of a firm, calculated by dividing long-term debt by the amount of capital available:
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Long-Term Equity Anticipation Securities - LEAPS
- Publicly traded options contracts with expiration dates that are longer than one year. Structurally, LEAPS are no different than short-term options, but the later expiration dates offer the opportunity for long-term investors to gain exposure to prolonged price changes without needing to use a combination of shorter-term option contracts. The premiums for LEAPs are higher than for standard options in the same stock because the increased expiration date gives the underlying asset more time to make a substantial move and for the investor to make a healthy profit.
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Long-Term Growth - LTG
- An investing strategy or concept where a security will appreciate in value for a relatively long period of time, whether or not the growth is initiated immediately or later on. Long-term growth is a relative term, as the investing horizon differs between investing styles, but the perceived appreciation in the security remains the same.
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Long-Term Incentive Plan - LTIP
- A reward system designed to improve employees' long-term performance by providing rewards that may not be tied to the company's share price. In a typical LTIP, the employee (usually an executive) must fulfill various conditions and/or requirements that prove that he or she has contributed to increasing shareholder value. The incentives for doing this are usually conditional company shares, which are distributed in two parts. The first part represents an immediate distribution of half of the shares, while the remaining half of the shares will only be presented to the executive if he or she stays with the company for a predefined number of years.
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Long-Term Investments
- An account on the asset side of a company's balance sheet that represents the investments that a company intends to hold for more than a year. They may include stocks, bonds, real estate and cash.
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Long-Term Liabilities
- Recorded on the balance sheet, a company's liabilities for leases, bond repayments and other items due in more than one year.
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Long/Short Equity
- A hedge fund strategy that involves buying certain stocks long and selling others short. There usually isn't a restriction on the country that the stocks trade in either.
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Long/Short Fund
- A type of mutual fund that mimics some of the trading strategies typically employed by a hedge fund. Unlike most mutual funds, long/short funds use leverage, derivatives and short positions in an attempt to maximize total returns, regardless of market conditions. The amount of leverage used and the number of derivatives and short positions that long/short funds may contain are limited by law. These funds invest primarily in stocks.
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Longevity Derivatives
- A class of securities that provides a hedge against parties that are exposed to longevity risks through their businesses, such as pension plan managers and insurers. These types of derivatives are designed to have increasingly high payouts as a selected population group lives longer than was originally expected or calculated.
The first (and still most prevalent) form of longevity derivatives is the longevity bond (also known as survivor bond), which pays a coupon based on the "survivorship" of a stated population group. As the mortality rate of the stated population group rises, coupon payments drop until eventually reaching zero. The longevity derivatives market has since expanded to include forward contracts, options and swaps.
- A class of securities that provides a hedge against parties that are exposed to longevity risks through their businesses, such as pension plan managers and insurers. These types of derivatives are designed to have increasingly high payouts as a selected population group lives longer than was originally expected or calculated.
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Longevity Risk
- The risk to which a pension fund or life insurance company could be exposed as a result of higher-than-expected payout ratios. Longevity risk exists due to the increasing life expectancy trends among policy holders and pensioners, and can result in payout levels that are higher than what a company or fund originally accounts for. The types of plans exposed to the greatest levels of longevity risk are defined-benefit pension plans and annuities, which guarantee lifetime benefits for policy or plan holders.
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Longitudinal Data
- The process of collecting sample observations from a larger population over a given time period. Longitudinal data is used in statistical and financial studies.
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Look Thru
- An accounting method for calculating taxes owed on income from controlled foreign corporations.
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Look-Ahead Bias
- Bias created by the use of information or data in a study or simulation that would not have been known or available during the period being analyzed. This will usually lead to inaccurate results in the study or simulation.
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Lookback Option
- An exotic option that allows investors to "look back" at the underlying prices occurring over the life of the option, and then exercise based on the underlying asset's optimal value.
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Loonie
- A slang term for a Canadian dollar. It is derived from the picture of a loon on one side of the coin.
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Loophole
- A technicality that allows a person or business to avoid the scope of a law or restriction without directly violating the law. Used often in discussions of taxes and their avoidance, loopholes provide ways for individuals and companies to remove income or assets from taxable situations into ones with lower taxes or none at all.
Loopholes are most prevalent in complex business deals involving tax issues, political issues and legal statutes. They can be found within contract details, building codes, tax codes, among others.
- A technicality that allows a person or business to avoid the scope of a law or restriction without directly violating the law. Used often in discussions of taxes and their avoidance, loopholes provide ways for individuals and companies to remove income or assets from taxable situations into ones with lower taxes or none at all.
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Loose Credit
- The practice of making credit easy to come by, either through relaxed lending criteria or by lowering interest rates for borrowing. Loose credit often refers to central banking monetary policy and whether it is looking to expand the money supply (loose credit) or contract it (tight credit).
Loose credit environments may also be called "accommodative monetary policy" or "loose monetary policy".
- The practice of making credit easy to come by, either through relaxed lending criteria or by lowering interest rates for borrowing. Loose credit often refers to central banking monetary policy and whether it is looking to expand the money supply (loose credit) or contract it (tight credit).
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Losing The Points
- A currency trading term that describes when the banks' buying price in the forward market is lower than the selling price in the spot market. A trader is losing the points when he or she buys at one price now and then agrees to sell for less in the future. This is the opposite of earning the points.
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Losing Your Shirt
- In the investment world, this expression is used to describe a very bad investment that causes an investor to lose everything he or she has invested (and more, in some cases).
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Loss Carryback
- An accounting technique with which a company retroactively applies net operating losses to a preceding year's income in order to reduce tax liabilities present in that previous year.
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Loss Carryforward
- An accounting technique that applies the current year's net operating losses to future years' profits in order to reduce tax liability. Generally accepted accounting principles (GAAP) specify that loss carryforwards can be used in any one of the seven years following the loss.
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Loss Given Default - LGD
- The amount of funds that is lost by a bank or other financial institution when a borrower defaults on a loan. Academics suggest that there are several methods for calculating the loss given default, but the most frequently used method compares actual total losses to the total potential exposure at the time of default.
Of course, most banks don't simply calculate the LGD for one loan. Instead, they review their entire portfolio and determine LGD based on cumulative losses and exposure.
- The amount of funds that is lost by a bank or other financial institution when a borrower defaults on a loan. Academics suggest that there are several methods for calculating the loss given default, but the most frequently used method compares actual total losses to the total potential exposure at the time of default.
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Loss Leader Strategy
- A business strategy in which a business offers a product or service at a price that is not profitable for the sake of offering another product/service at a greater profit or to attract new customers. This is a common practice when a business first enters a market; a loss leader introduces new customers to a service or product in the hope of building a customer base and securing future recurring revenue.
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Loss Management
- A business practice that seeks to detect, identify, investigate and prevent events that cause a drop in value of any of an organization's revenues, assets and services. Loss-management improvements may involve changes in a business's operating policies and business model in order to limit instances of accidental and/or intentional loss.
- A business practice that seeks to detect, identify, investigate and prevent events that cause a drop in value of any of an organization's revenues, assets and services. Loss-management improvements may involve changes in a business's operating policies and business model in order to limit instances of accidental and/or intentional loss.
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Loss Psychology
- The emotional aspects associated with investing and the negative sentiment associated with recognizing a loss. The fear of financial losses can be overcome, but it requires looking at what has happened logically and learning from it so that you can avoid the same situation in the future.
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Lost Decade
- A period in Japanese history in which economic growth was virtually flat due to the bursting of an asset bubble. "The Lost Decade" is the term coined to describe the period from 1991-2001, in which the Japanese economy grew extremely slowly despite extremely low interest rates.
- A period in Japanese history in which economic growth was virtually flat due to the bursting of an asset bubble. "The Lost Decade" is the term coined to describe the period from 1991-2001, in which the Japanese economy grew extremely slowly despite extremely low interest rates.
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Lot
- In general, any group of goods or services making up a transaction. In the financial markets, a lot represents the standardized quantity of a financial instrument as set out by an exchange or similar regulatory body. For exchange-traded securities, a lot may represent the minimum quantity of that security that may be traded.
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Lottery
- A game of chance, where winners are typically decided by a drawing. Lotteries can be used in decision-making situations, such as sports drafts and allocation of scarce medical treatment, but are most commonly used in the popular form of gambling, financial lotteries. The financial lottery is a game where players select a group of numbers and win prizes based on how they match the drawn results.
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Lottery Bond
- A bond issued in the U.S. and U.K. with a rate of return dependent upon a lottery style payout.
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Love Money
- Seed money or capital given by family or friends to an entrepreneur to start a business. The decision to lend money and the terms of the agreement are usually based on qualitative factors and the relationship between the two parties, rather than on a formulaic risk analysis.
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Low / No Documentation Loan
- A category of loans which generally fall into the Alt-A sector of mortgage lending that gives borrowers the ability to state a limited amount of information on their mortgage application. Limited income, employment or asset information may be required depending on the specific type of low documentation loan; however, in some cases, the borrower may not need to provide them at all. There are subtle differences between various low documentation and no documentation loan programs offered by mortgage lenders.
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Low Ball
- A slang term for an offer that is significantly below the fair value of an asset or group of assets.
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Low Exercise Price Option - LEPO
- A call option with an exercise price of 1 cent, and an agreement to purchase 1000 shares. They cannot be exercised until expiry, work similar to that of a futures contract, and the premium paid is basically the price to purchase an entire share however, the purchaser only posts a percentage as margin.
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Low Volume Pullback
- A technical correction toward an area of support that occurs on lower-than-average volume. The low volume is a signal to traders that the trend is not reversing and that it is only the weak longs looking to lock in a quick profit. Frequent moves that occur in the opposite direction of a trend, which are accompanied by low volume, are normal fluctuations and generally deemed to be insignificant. On the other hand, a large spike in volume in the opposite direction of the trend could be used to signal that the smart money is starting to look for the exits and that the trend is getting ready to reverse.
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Low-Down Mortgages
- Mortgage programs which require a minimal down payment. Most low-down mortgages require a down payment of between 3% - 5% of the property value; however, some lenders have programs for 100% financing (or 0% down payment). Low-down mortgages are designed primarily for borrowers with a low to moderate income and first-time home buyers. Other borrowers elect to use low-down mortgages in order to use their down payment elsewhere. Low-down mortgages are offered through several sources, including state and local governments, the Federal Housing Administration, the Veterans Administration and individual lenders.
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Lower of Cost and Market Method
- A requirement of GAAP in the United States that inventory be recorded at the lower of either the cost to produce it, the cost to repurchase it or the market value of the inventory.
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LSL
- The currency code for the Lesotho loti, the official currency of the Kingdom of Lesotho. The loti is subdivided into 100 lisente subunits and is pegged to the South African rand at par through the so-called Common Monetary Area. Coins are issued in denominations of 1, 2, 5, 10, 20 and 50 lisente, and 1, 2 and 5 loti. Banknotes are issued in denominations of 10, 20, 50, 100 and 200.
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LTL
- The currency code for the Lithuanian litas, the currency of the Baltic country of Lithuania. The Lithuanian litas (LTL) is subdivided into 100 centas. The Bank of Lithuania mints coins in denominations of 1, 2, 5, 10, 20 and 50 centas, and 1, 2 and 5 litai. Banknotes are issued in 10, 20, 50, 100, 200 and 500 denominations.
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Lucas Wedge
- The aggregate amount of loss in output for an economy that is the result of a slowdown in the growth rate of the real gross domestic product (GDP). The Lucas wedge is a visual representation of where a given economy would be in terms of economic output if there hadn't been a slowdown.
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Lump-Sum Distribution
- A one-time payment for the entire amount due, rather than breaking payments into smaller installments. Some lump-sum distributions receive special tax treatment.
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Luxury Tax
- A tax placed on products or services that are deemed to be unnecessary or non-essential. This type of tax is an indirect tax in that the tax increases the price of the good or service and is only incurred by those who purchase or use the product.
The term has remained even though many of the products that are assessed with luxury taxes today are no longer seen as "luxuries" in the literal sense. Today's definition leans more toward "sinful" items, such as tobacco, alcohol, jewelry and high-end automobiles. They are implemented as much in an attempt to change consumption patterns as to collect tax revenues.
Luxury taxes can also be called "excise taxes" or "sin taxes".
- A tax placed on products or services that are deemed to be unnecessary or non-essential. This type of tax is an indirect tax in that the tax increases the price of the good or service and is only incurred by those who purchase or use the product.
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LVL
- In currencies, this is the abbreviation for the Latvian Lat.
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LVL (Latvian Lat)
- The currency abbreviation for the Latvian lat (LVL), the currency for Latvia. The Latvian lat is made up of 100 santïms and is often presented with the symbol Ls before the numerals, or s after them (Ls100 or 100s).
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LYD
- In currencies, this is the abbreviation for the Libyan Dinar.
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LYD (Libyan Dinar)
- The currency abbreviation for the Libyan dinar (LYD), the currency for Libya. The Libyan dinar is made up of 1000 dirham and is often presented with the symbol LD. In Libya, the dinar is often called jni or jneh. The word dirham is never used in everyday language, "garsh" is used instead, which equals 10 dirhams.
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