Fast Facts - I - L

< Fast Facts

IAB - Abbreviation for indexed annuity bond.

IBSA - Acronym of International Banks and Securities Association of Australia. . Web site: www.ibsa.asn.au

ICA - Abbreviation for Insurance Council of Australia. Web site: www.ica.com.au

IDPS - Abbreviation for Investor Directed Portfolio Service.

IFSA - Abbreviation for Investment and Financial Services Association.

IMA - Abbreviation for Investment Management Agreement.

IMF - Abbreviation for International Monetary Fund.

Immunisation - In relation to investment management, immunisation is the practice of protecting the portfolio from specific risks.

Implied Volatility - The level of volatility in the price of an underlying asset that is assumed for the purpose of calculating a price of an option based on that asset.

Imputation Credit - Taxation credits that are passed on to shareholders who have received franked dividends in relation to their shareholdings. See also dividend imputation.

IMRO - Abbreviation for Investment Management Regulatory Organisation. Web site: www.fsa.gov.au/imro/

Income Portfolio - A portfolio consisting of securities whose principal attractiveness lies in the steady income they provide.

Income Tax Assessment Act (ITAA) - The Commonwealth legislation governing income tax, payable by Australian taxpayers.

Incorporation - The legal process by which a company is established.

In-the-Money Option - A call option whose exercise price is below, or a put option whose exercise price is above, the current price of the asset on which the option is written.

Jelly Roll - A long-call option and short-put option in one expiration month, and a short-call option and long-put option in a different expiration month. All four options must have the same underlying commodity, stock, or index, and typically also have the same exercise price. The effect is to create a long synthetic position in one month offset by a short synthetic position in a different month.

Joint Venture - A project undertaken by two or more parties to achieve a mutual objective. For example, a private company may enter into a joint venture with a government body in order to undertake and complete a construction project.

Jump - Non-continuous trading on prices in the underlying commodity, currency, or investment instrument. Generally, this is represented by an extreme one-off in the market price. For example, the effect on option prices of the share market crash of October 1987. Also known as gapping.

Junk Bond - A high-risk, high-yield, debt security rated below investment grade.

Knock In - A call or put option that does not take effect until the underlying security reaches a predetermined price. There are two varieties of knock ins: ‘down and ins’ take effect when the underlying security falls to a certain price, and ‘up and ins’ take effect when the underlying security rises to a certain price. See also knock out, barrier option.

Knock Out - A call or put option that expires if the under­lying security reaches a predetermined price. There are two varieties of knock outs: ‘down and outs’ expire if the underlying security falls to a certain price, and ‘up and outs’ expire if the underlying security rises to a certain price. See also knock in, barrier option.

Lagging Indicators - Economic variables that tend to follow movements in the economy as a whole; for example, trade figures. Publication of lagging indicators 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 the physical security or by cash settlement.

LBO - Abbreviation for leveraged buy-out.

Leading Indicators - Economic variables that are seen as anticipatory of future trends or expectations; for example share prices and currency movements. Opposite of lagging indicators.

Lease - A contractual agreement under which a person or company (lessee) is entitled to use property belonging to another (lessor) in return for periodic payments, for example rent, for a specified period.

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.

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. A letter of comfort is not a guarantee.

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

Leverage - (a) A synonym for gearing, for example, using derivatives investments to over-invest a portfolio; (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 that company is expected to be sufficient to result in a profit large enough to meet debt repayments.

Liabilities - (a) Debts (in the case of companies). Opposite of assets; (b) a stream of obligations; for example, 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 hence 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. For example, if a television is taken to a shop for repair, the shop owner has a lien over the television until the television owner pays for the repairs.

Life Insurance Act - The 1945 Commonwealth legislation that 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. Also known as a life assurance company.

Life Office - Another name for a life insurance company.

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

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.

Liquid Assets - Assets held as cash, or in the form of securities that can be converted into cash swiftly and with minimal capital loss, for example short-term bank bills. See also liquidity.

A-D | E-H | I-L | M-O | P-S | T-W | X-Z