Copy of `New York Times - Business and Finance Glossary`

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New York Times - Business and Finance Glossary Category: Economy and Finance Date & country: 11/09/2007, USA Words: 2680

Inventory turnover
The ratio of annual sales to average inventory which measures the speed that inventory is produced and sold. Low turnover is an unhealthy sign, indicating excess stocks and/or poor sales.

Inverse floating rate note
A variable rate security whose coupon rate increases as a benchmark interest rate declines.

Inverted market
A futures market in which the nearer months are selling at price premiums to the more distant months. Related: premium.

Investment analysts
Related: financial analysts

Investment bank
Financial intermediaries who perform a variety of services, including aiding in the sale of securities, facilitating mergers and other corporate reorganizations, acting as brokers to both individual and institutional clients, and trading for their own accounts. Underwriters.

Investment decisions
Decisions concerning the asset side of a firm's balance sheet, such as the decision to offer a new product.

Investment grade bonds
A bond that is assigned a rating in the top four categories by commercial credit rating companies. For example, S&P classifies investment grade bonds as BBB or higher, and Moodys' classifies investment grade bonds as Ba or higher. Related: High-yield bond.

Investment income
The revenue from a portfolio of invested assets.

Investment management
Also called portfolio management and money management, the process of managing money.

Investment manager
Also called a portfolio manager and money manager, the individual who manages a portfolio of investments.

Investment product line (IPML)
The line of required returns for investment projects as a function of beta (nondiversifiable risk).

Investment tax credit
Proportion of new capital investment that can be used to reduce a company's tax bill (abolished in 1986).

Investment trust
A closed-end fund regulated by the Investment Company Act of 1940. These funds have a fixed number of shares which are traded on the secondary markets similarly to corporate stocks. The market price may exceed the net asset value per share, in which case it is considered at a 'premium.' When the market price falls below the NAV/share, it is at a 'discount.' Many closed-end funds are of a specialized nature, with the portfolio representing a particular industry, country, etc. These funds are usua…

Investment value
Related:straight value.

Investments
As a discipline, the study of financial securities, such as stocks and bonds, from the investor's viewpoint. This area deals with the firm's financing decision, but from the other side of the transaction.

Investor
The owner of a financial asset.

Investor fallout
In the mortgage pipeline, risk that occurs when the originator commits loan terms to the borrowers and gets commitments from investors at the time of application, or if both sets of terms are made at closing.

Investor relations
The process by which the corporation communicates with its investors.

Investor's equity
The balance of a margin account. Related: buying on margin, initial margin requirement.

Invoice billing
Billing system in which the invoices are sent off at the time of customer orders are all separate bills to be paid.

Invoice date
Usually the date when goods are shipped. Payment dates are set relative to the invoice date.

Invoice price
The price that the buyer of a futures contract must pay the seller when a Treasury Bond is delivered.

Involuntary liquidation preference
A premium that must be paid to preferred or preference stockholders if the issuer of the stock is forced into involuntary liquidation.

IRA-Keogh accounts
Special accounts where you can save and invest, and the taxes are deferred until money is withdrawn. These plans are subject to frequent changes in law with respect to the deductibility of contributions. Withdrawals of tax deferred contributions are taxed as income, including the capital gains from such accounts.

Irrational call option
The implied call imbedded in the MBS. Identified as irrational because the call is sometimes not exercised when it is in the money (interest rates are below the threshold to refinance). Sometimes exercised when not in the money (home sold without regard to the relative level of interest rates).

Irrelevance result
The Modigliani and Miller theorem that a firm's capital structure is irrelevant to the firm's value.

ISDA
International Swap Dealers Association. Formed in 1985 to promote uniform practices in the writing, trading, and settlement of swaps and other derivatives.

Issue
A particular financial asset.

Issued share capital
Total amount of shares that are in issue. Related: outstanding shares.

Issuer
An entity that issues a financial asset.

Jensen index
An index that uses the capital asset pricing model to determine whether a money manager outperformed a market index. The 'alpha' of an investment or investment manager.

Joint account
An agreement between two or more firms to share risk and financing responsibility in purchasing or underwriting securities.

Joint clearing members
Firms that clear on more than one exchange.

Jumbo loan
Loans of $1 billion or more. Or, loans that exceed the statutory size limit eligible for purchase or securitization by the federal agencies.

Junior debt (subordinate debt)
Debt whose holders have a claim on the firm's assets only after senior debtholder's claims have been satisfied. Subordinated debt.

Junk bond
A bond with a speculative credit rating of BB (S&P) or Ba (Moody's) or lower is a junk or high yield bond. Such bonds offer investors higher yields than bonds of financially sound companies. Two agencies, Standard & Poors and Moody's investor Services, provide the rating systems for companies' credit.

Just-in-time inventory systems
Systems that schedule materials/inventory to arrive exactly as they are needed in the production process.

Kappa
The ratio of the dollar price change in the price of an option to a 1% change in the expected price volatility.

Kiretsu
A network of Japanese companies organized around a major bank.

Ladder strategy
A bond portfolio strategy in which the portfolio is constructed to have approximately equal amounts invested in every maturity within a given range.

Lag
Payment of a financial obligation later than is expected or required, as in lead and lag. Also, the number of periods that an independent variable in a regression model is 'held back' in order to predict the dependent variable.

Lag response of prepayments
There is typically a lag of about three months between the time the weighted average coupon of an MBS pool has crossed the threshold for refinancing and an acceleration in prepayment speed is observed.

Lambda
The ratio of a change in the option price to a small change in the option volatility. It is the partial derivative of the option price with respect to the option volatility.

Last split
After a stock split, the number of shares distributed for each share held and the date of the distribution.

Last trading day
The final day under an exchange's rules during which trading may take place in a particular futures or options contract. Contracts outstanding at the end of the last trading day must be settled by delivery of underlying physical commodities or financial instruments, or by agreement for monetary settlement depending upon futures contract specifications.

Last-In-First-Out (LIFO)
A method of valuing inventory that uses the cost of the most recent item in inventory first.

Law of large numbers
The mean of a random sample approaches the mean (expected value) of the population as the sample grows.

Law of one price
An economic rule stating that a given security must have the same price regardless of the means by which one goes about creating that security. This implies that if the payoff of a security can be synthetically created by a package of other securities, the price of the package and the price of the security whose payoff it replicates must be equal.

Lead
Payment of a financial obligation earlier than is expected or required.

Lead manager
The commercial or investment bank with the primary responsibility for organizing syndicated bank credit or bond issue. The lead manager recruits additional lending or underwriting banks, negotiates terms of the issue with the issuer, and assesses market conditions.

Leading economic indicators
Economic series that tend to rise or fall in advance of the rest of the economy.

Leakage
Release of information to some persons before official public announcement.

LEAPS
Long-term equity anticipation securities. Long-term options.

Lease
A long-term rental agreement, and a form of secured long-term debt.

Lease Rate
The payment per period stated in a lease contract.

Ledger cash
A firm's cash balance as reported in its financial statements. Also called book cash.

Legal bankruptcy
A legal proceeding for liquidating or reorganizing a business.

Legal capital
Value at which a company's shares are recorded in its books.

Legal defeasance
The deposit of cash and permitted securities, as specified in the bond indenture, into an irrevocable trust sufficient to enable the issuer to discharge fully its obligations under the bond indenture.

Legal investments
Investments that a regulated entity is permitted to make under the rules and regulations that govern its investing.

Lend
To provide money temporarily on the condition that it or its equivalent will be returned, often with an interest fee.

Lessee
An entity that leases an asset from another entity.

Lessor
An entity that leases an asset to another entity.

Letter of comment
A communication to the firm from the SEC that suggests changes to its registration statement.

Letter of credit (L-C)
A form of guarantee of payment issued by a bank used to guarantee the payment of interest and repayment of principal on bond issues.

Letter stock
Privately placed common stock, so-called because the SEC requires a letter from the purchaser stating that the stock is not intended for resale.

Level pay
The characteristic of the scheduled principal and interest payments due under a mortgage such that total monthly payment of P&I is the same while characteristically the principal payment component of the monthly payment becomes gradually greater while the monthly interest payment becomes less.

Level-coupon bond
Bond with a stream of coupon payments that are the same throughout the life of the bond.

Leverage
The use of debt financing.

Leverage clientele
A group of shareholders who, because of their personal leverage, seek to invest in corporations that maintain a compatible degree of corporate leverage.

Leverage ratios
Measures of the relative contribution of stockholders and creditors, and of the firm's ability to pay financing charges. Value of firm's debt to the total value of the firm.

Leverage rebalancing
Making transactions to adjust (rebalance) a firm's leverage ratio back to its target.

Leveraged beta
The beta of a leveraged required return; that is, the beta as adjusted for the degree of leverage in the firm's capital structure.

Leveraged buyout (LBO)
A transaction used for taking a public corporation private financed through the use of debt funds: bank loans and bonds. Because of the large amount of debt relative to equity in the new corporation, the bonds are typically rated below investment grade, properly referred to as high-yield bonds or junk bonds. Investors can participate in an LBO through either the purchase of the debt (i.e., purchase of the bonds or participation in the bank loan) or the purchase of equity through an LBO fund that…

Leveraged equity
Stock in a firm that relies on financial leverage. Holders of leveraged equity face the benefits and costs of using debt.

Leveraged lease
A lease arrangement under which the lessor borrows a large proportion of the funds needed to purchase the asset and grants the lender a lien on the assets and a pledge of the lease payments to secure the borrowing.

Leveraged portfolio
A portfolio that includes risky assets purchased with funds borrowed.

Leveraged required return
The required return on an investment when the investment is financed partially by debt.

Liability
A financial obligation, or the cash outlay that must be made at a specific time to satisfy the contractual terms of such an obligation.

Liability funding strategies
Investment strategies that select assets so that cash flows will equal or exceed the client's obligations.

Liability swap
An interest rate swap used to alter the cash flow characteristics of an institution's liabilities so as to provide a better match with its assets.

LIBOR
The London Interbank Offered Rate; the rate of interest that major international banks in London charge each other for borrowings. Many variable interest rates in the U.S. are based on spreads off of LIBOR. There are many different LIBOR tenors.

Lien
A security interest in one or more assets that is granted to lenders in connection with secured debt financing.

LIFO (Last-in-first-out)
The last-in-first-out inventory valuation methodology. A method of valuing inventory that uses the cost of the most recent item in inventory first.

Lifting a leg
Closing out one side of a long-short arbitrage before the other is closed.

Limit order
An order to buy a stock at or below a specified price or to sell a stock at or above a specified price. For instance, you could tell a broker 'Buy me 100 shares of XYZ Corp at $8 or less' or to 'sell 100 shares of XYZ at $10 or better.' The customer specifies a price and the order can be executed only if the market reaches or betters that price. A conditional trading order designed to avoid the danger of adverse unexpected price changes.

Limit order book
A record of unexecuted limit orders that is maintained by the specialist. These orders are treated equally with other orders in terms of priority of execution.

Limit price
Maximum price fluctuation

Limitation on asset dispositions
A bond covenant that restricts in some way a firm's ability to sell major assets.

Limitation on liens
A bond covenant that restricts in some way a firm's ability to grant liens on its assets.

Limitation on sale-and-leaseback
A bond covenant that restricts in some way a firm's ability to enter into sale and lease-back transactions.

Limitation on subsidiary borrowing
A bond covenant that restricts in some way a firm's ability to borrow at the subsidiary level.

Limited liability
Limitation of possible loss to what has already been invested.

Limited partner
A partner who has limited legal liability for the obligations of the partnership.

Limited partnership
A partnership that includes one or more partners who have limited liability.

Limited-liability instrument
A security, such as a call option, in which the owner can only lose his initial investment.

Limited-tax general obligation bond
A general obligation bond that is limited as to revenue sources.

Line of credit
An informal arrangement between a bank and a customer establishing a maximum loan balance that the bank will permit the borrower to maintain.

Linear programming
Technique for finding the maximum value of some equation subject to stated linear constraints.

Linear regression
A statistical technique for fitting a straight line to a set of data points.