Glossary l - moneymanager.com.au

Lagging Indicators
Economic variables which tend to follow movements in the economy as a whole (eg. trade figures) and whose publication confirms things that have already happened rather than pointing to emerging trends. (Opposite of Leading Indicators).

Last Sale
The last price at which a transaction in a security took place on a certain day or a particular time during a trading session. These prices are often important for the purposes of valuing a portfolio.

Last Trading Day
The final day under an Exchange's rules during which trading may take place in a particular futures contract's delivery month. A futures contract outstanding at the end of the last trading day must be settled by delivery of physicals or by cash settlement.

LBO
Abbreviation for Leveraged Buy-out.

Leading Indicators
Economic variables which are seen as anticipatory of future trends or expectations (eg. share prices, currency movements), as opposed to indicators which are based on retrospective or historical statistics. (Opposite of Lagging Indicators).

Lease
An agreement between two parties allowing one party to use an asset (eg. property) owned by the other party, for a specified time period, in return for a series of payments.

Leaseback
A property transaction in which the seller remains in possession of the property as a tenant after completing the sale and delivering the deed.

Legal Fee
May be charged where an outside party is used to prepare bank documentation.

The Uniform Consumer Credit Code Legislation
A Federal Act of Parliament to ensure uniformity amongst all credit providers. E.g. all loan contracts must now adhere to a uniform format as specified by the act. It must set out all fees / charges that the borrower (and, if required, guarantor) are liable for under the loan contract.

LEPO
Abbreviation for Low Exercise Price Option.

Letter of Comfort
A form of reassurance that a company will be able to meet its liabilities or perform its obligations under a contract. Letters of comfort are often issued by parent companies in relation to their overseas subsidiaries. They do not necessarily amount to a formal guarantee.

Letter of Credit
An undertaking by a bank to repay a loan obligation in the event of a default by a subsidiary or a client company.

Leverage
a) A synonym for gearing (eg. using derivative investments to over-invest a portfolio); or b) The use of an asset as security for a borrowing.

Leveraged Buy-out (LBO)
The use of borrowed funds to purchase a company where the equity value or potential cash flow of the target company is expected to be sufficient to result in a profit for shareholders and/or meet debt repayments.

Liabilities
a) Debts (plus, in the case of companies, dividends due to shareholders). Opposite of Assets; b) A stream of obligations (eg. pension payments).

Liability Consultant
A professional person engaged by holders of liabilities, such as banks or industry superannuation funds, to advise on appropriate payment strategies and organisational structures to meet a stream of obligations. (See also Asset Consultant).

LIBOR
Abbreviation for London Interbank Offered Rate, the interest rate at which major international banks in London will lend cash to each other, and thus an indicator rate for international lending.

Lien
A charge over an asset, or the right to hold another party's assets as security for that party's performance of an obligation.

Life Insurance Act
The 1945 Commonwealth legislation which is the main source of regulation of Australia's life insurance industry.

Life Insurance Company
A financial institution with the main business of providing insurance against death and disability through households investing funds with the company. Life insurance companies also operate superannuation funds.

Life Investment and Superannuation Association (LISA)
An industry association representing Australian and overseas-based mutual societies and proprietary direct-writing and reinsurance companies. Its objectives are to represent the interest of member companies, their policyholders and beneficiaries, and to promote public understanding of and appreciation of the benefits provided by life insurance, investment and superannuation. Membership is open to all companies registered under the Commonwealth Life Insurance Act 1995. As at June 1995, LISA had 37 members, responsible for 9.5 million life insurance and superannuation policies which were in force for a sum insured of $617 billion.

Life Office
Another name for a Life Insurance Company.

Limited Liability
A form of company structure under which shareholders' liabilities are limited to the value of their shares in the company, even when the debts of the company actually exceed that value.

Limit Order
An order to buy or sell a stated amount of a security at a specified price, or better if obtainable, after the order is represented on the floor of the stock exchange. (See also Market Order).

Liquid Assets
Assets held as cash, or in the form of securities which can be converted into cash swiftly and with minimal capital loss (eg. short-term bank bills). (See also Liquidity).

Liquidation
The winding up of the affairs of a company, including sale of its assets, settlement of its liabilities (if possible) and payment of any remaining cash to shareholders. (See also Receivership).

Liquidator
A person appointed, usually by a court, to conduct the winding-up of a company and the liquidation of its assets. (See also Administrator and Receiver).

Liquidity
a) The ability of an investment to be easily converted into cash with little or no loss of capital and minimum delay. An example of a highly liquid asset is a short-term bank bill or promissory note, while property is a relatively illiquid investment. For many securities, the degree of liquidity depends on the depth of the secondary market for that security; b) The maintenance of cash and reserves by a financial institution to fund withdrawals by depositors, unitholders or clients.

Liquidity Cycle
An economic observation of the way asset prices rise or fall in relation to cyclical movements in interest rates over a business cycle.

Liquidity Preference Theory
The proposition that investors characteristically prefer liquidity in investments and consequently will generally only be induced to hold longer-term securities if higher returns are offered. The theory is used to explain the term structure of interest rates. (See also Risk Premium).

Liquidity Premium
An additional price paid for an asset on the basis of its greater liquidity or tradeability or, alternatively, an additional return required by an investor to compensate for lack of liquidity.

Liquidity Risk
The risk that an investment may not be easily converted into cash with little or no loss of capital and minimum delay.

Liquid Market
A market where selling and buying can be accomplished with ease, due to the presence of a large number of interested buyers and sellers willing and able to trade substantial quantities at small price differences.

LISA
Abbreviation for Life Investment and Superannuation Association.

Listed Company
A company whose shares are traded on the stock exchange and are able to be bought and sold by members of the general public.

Listed Property Trust (LPT)
See Property Trust.

Listed Security
A security which is traded on an exchange for the organised buying and selling of securities (eg. shares on the stock exchange, or futures on the futures exchange). Listed securities are usually more liquid than unlisted ones owing to the existence of such an exchange. (See also Secondary Market).

Listing Rules
Rules set out by the Australian Stock Exchange with which companies must comply to remain eligible to be listed companies.

Loan to Value Ratio.
Refers to the maximum amount lenders will approve against the value of any property taken as security for your home loan.

For example if you wish to purchase a property worth $100,000 the lender may approve a loan for 80% of the property value. It will then be up to you to provide the remaining 20% plus costs (mortgage registration and stamp duty etc).

Local
A member of a futures exchange with the authority to deal on the trading floor on his/her own account or for Floor Members but not on behalf of clients.

Lognormal Distribution
The standard statistical model for the expected distribution of asset price movements. More technically, it assumes that the natural logarithms of relative price movements are normally distributed.

Lombard
A rate of interest set by the German Bundesbank that is used specifically for loans to commercial banks. The Lombard rate is generally half a percentage point higher than the discount rate.

London Interbank Offered Rate
See LIBOR.

Long
In relation to foreign exchange and share market trading, referring to an ownership position in which the trader has bought more of a particular security than he or she has sold.

Long Position
An excess of purchases over sales of the relevant commodity, currency or investment instrument. (Opposite of Short Position).

Look Back Option
An option whose exercise or strike price depends on the prices reached prior to its expiry; eg. the minimum value reached during the option period.

Lot
Usually a specific quantity of a standard grade of a commodity, or a unit of trading equivalent to one futures contract.

Low Exercise Price Option (LEPO)
A derivative contract developed by the Australian Stock Exchange in 1994 that has a lower exercise price and, as a result, provides greater leverage than a standard call option. Its premium moves almost dollar for dollar with the price of the underlying share, not by differing amounts dependent on the time to expiry. This greater leverage entails greater risk. LEPOs are monitored daily like futures, and both buyers and sellers are subject to possible margin calls. LEPOs also have a European option expiry, unlike standard call options, which further increases their risk profile. At the time of going to print (April 1996), contracts were available for ten underlying shares.

LPT
Abbreviation for Listed Property Trust.

Lump Sum
In relation to superannuation, a benefit payable in cash rather than as a pension or annuity.

Lump Sum Reasonable Benefit Limit
See Reasonable Benefit Limit.

Lump Sum Tax
The taxation payable on the lump-sum component of a superannuation payout.

LVR
Loan to valuation ratio ie the maximum percentage lent by the institution against the stock.