MARKET: Debt Markets
Bills (short-term debt securities) issued by the Land Bank at weekly tenders to provide cheaper long-term loans to farmers and agricultural co-operatives.
Legal Risk
MARKET: Risk Management
The general potential for loss due to the legal and regulatory interpretation of legal and financial contracts relating to financial market transactions.
Lender of Last Resort
MARKET: General
Generally, the central bank of a country, which will assume the responsibility for the provision of liquidity to the domestic banking system.
Letter of Credit (LC)
Letters of credit accomplish their purpose by substituting the credit of the bank for that of the customer, for the purpose of facilitating trade. There are basically two types: commercial and standby. The commercial letter of credit is the primary payment mechanism for a transaction, whereas the standby letter of credit is a secondary payment mechanism.
Leverage
MARKET: General
The ability to control a large nominal amount of an underlying asset with a relatively small amount of capital. Futures and options are leveraged because with relatively small initial payments (of margin or premium), the buyer gains exposure to large amounts of the underlying asset. The initial margin or premium are generally a fractional amount (portion) of the underlying exposure to market prices that can be obtained.
Leveraging
MARKET: Debt Markets
Leveraging, or gearing, implies the use of debt to finance an asset or investment. The more funds are borrowed over the funds you already have (equity), the more highly leveraged (or geared) you are.
Leverage
MARKET: Debt Markets
Also known as gearing. The practice of borrowing money to supplement existing funds for investment in such a way that the potential positive or negative outcome is magnified and/or enhanced. It generally refers to using borrowed funds, or debt, in an attempt to increase investment returns. Deleveraging represents the action of reducing the level of borrowings.
There are economic periods when optimism incites to a widespread and excessive use of leverage, what is called over-leverage. One of its forms, associated to the subprime crisis, was the practice of financing homes with no or little down payment (deposit), playing on the hope that the price of the asset will rise.
Negative gearing is a form of financial leverage where an investor borrows money to buy assets, but the income generated by that asset does not cover the interest cost of the loan. A negative gearing strategy can only make a profit if the asset value rises and creates enough future capital gains to cover the shortfall between the income on the asset and the interest cost on the funding transaction.
LIBOR
MARKET: Money Markets
London Interbank Offered Rate is the rate of interest at which a bank is willing to lend (offer) funds in the interbank market.
LIFFE
MARKET: Derivatives
London International Financial Futures and Options Exchange was formed in 1992 after a merger of the original London International Financial Futures Exchange (LIFFE) and the London Traded Options Market (LTOM).
Liquidity
MARKET: General
Liquidity involves the ease with which an issue or instrument (asset) can be sold near its true or fair value. The measure for liquidity is generally the size of the bid-offer spread of the market maker.
Liquidity Risk
MARKET: Risk Management
The better market liquidity, the smaller the bid-offer spread. The greater the bid-offer spread, the higher the liquidity risk to the holder of the instrument, i.e. the higher potential cost to sell the instrument for cash.
LME
MARKET: Commodities
The London Metal Exchange (LME).
Long
MARKET: General
Market terminology referring to a position where a market participant has bought the underlying asset or financial instrument and will benefit from an increase in the price or value of the asset.
Lookback Option
MARKET: Options
A lookback option gives the holder the right to, on expiry, exercise at the most favourable price that prevailed during the life of the option.
London Bullion Market Association (LBMA)
The LBMA is the London-based trade association that represents the wholesale over-the-counter market for gold and silver in London.
