A term used to describe an option whose strike price is more advantageous than the current market price of the underlying instrument. The option becomes more expensive as the advantage increases because its intrinsic value is greater. See Out of the Money, At the Money.

Broad term covering various direct forms of inflation control by a government. Can include a freeze or limitation on increases in prices, wages, dividends, investment income, rents.

Bond with coupon payments linked to the national consumer price index.

Persistent upward movement in the general price level together with a related drop in purchasing power. The nominal rate of return on an investment should be distinguished from its real rate of return, i.e. the net yield after deduction of inflation.

The risk associated with the return from an investment not being offset by the loss in purchasing power as a result of inflation.

The primary market of the stock market, i.e. the very first offering of shares being made to the public by a company. If the same company issues more shares to the public, these are referred to as new issue shares. Proceeds from the IPO go to the issuer. The issuer normally offers to the public through an underwriter who sets the price and promotes the offering. Initial public offerings can take place in the over the counter market or, if the company has met the listing requirements, on a stock exchange.

Exploitation of inside or privileged information for profit in market transactions.

A company is insolvent when it is unable to pay its debts as and when they fall due. Arises when, for instance, judgement debts remain unsatisfied or cheques are returned unpaid by the company's bankers. A company is also insolvent when its liabilities, including contingent and prospective liabilities, exceed the value of the assets.

Promotes economic and social projects in developing countries by financial, via loans, and technical assistance. Set up in 1959.

The professional market between banks. The interbank money market is used to borrow and lend for short periods and to aid asset and liability management at the end of a day's trading.

Term used to describe instruments which pay a given rate of interest on the principal amount, either in one payment, typically at maturity, or as a series of payments over the life. Also referred to as coupon bearing.

The cost, often annual, paid by a borrower to a lender over a period of time. It is intended to compensate a lender for the sacrifice of losing immediate use of money and for the inflationary erosion of its buying power over the life of the loan and for the risk involved in lending the money. Interest rates are sensitively responsive to the supply and demand factors of credit and to inflationary expectations.

The difference in yield between two comparable instruments denominated in different currencies. Used in forward foreign exchange pricing.

The potential for losses or reduced income arising from adverse moves in interest rates.

Dividend paid by a company in a trading period, usually half yearly but can be quarterly. Authorised solely by the board of directors.

Group of sugar importing and exporting countries which formed the International Sugar Agreement. However, this pact is now purely administrative and has no market regulatory or economic clauses.

The value of an option. The intrinsic value indicates how much an option is In the Money. Calculated by taking the difference between the forward market value of the underlying instrument and the strike price of the option. Out of and At the Money options have zero intrinsic value. See Time Value.

Method of share issuance requiring only an abridged announcement in the national press, and typically used only when existing shares are widely held, or when seeking a listing on a second stock exchange.

A bank acting as an underwriter for new issues of stocks or bonds and which, as part of a syndicate, redistributes the issue to investors. In the US, an investment bank should not be described as a bank but rater as a financial institution.

Bonds which are rated BBB or above by the credit rating agencies and are considered to be safe investments, in that the agencies do not anticipate that the issuers are likely to default at the time the rating is issued.

Export and import of services as opposed to trade in physical goods or merchandise. They form part of the current account balance of payment and include funds arising from shipping, tourism, insurance, banking and commodity services. Such items can comprise a significant amount of a nation's current account.

Japanese corporate groupings centred around a trading house, bank or manufacturing firm which are linked by intertwined management, cross shareholdings and long term supplier / user relationships.

See separate entries such as 'Germany - Key Interest Rates" for the group 10 nations and Switzerland.

Theories developed by the U.K.'s John Maynard Keynes based on a cause and effect analysis of variations in aggregate spending and income. These thoughts opposed the free market philosophy and believed that economic performance could be improved by government intervention. They held sway in the 1960s and 1970s in the Western world.

An added feature of a debt obligation designed to enhance marketability.

Final day for the issuing of notices of intent to deliver against a futures contract.

Last day for trading in the current delivery month. Futures 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 cash settlement, if the former is impossible.

The covert action of passing money through channels secretively of via a chain of financial transactions, often using offshore facilities, to evade detection.

Oilseed market term for palm and coconut products.

Lesser (or less) Developed Country. Seen ad lower down the general economic scale than a developing country and usually taken as a nation which is not a member of the Organisation for Economic Cooperation and Development (OECD). However, the term is not precise. One rough measure is the amount of overseas debt relative to the strength of the economy.

Also means Least Developed Country for which one definition is a nation where annual per capita income is less than 400 dollars. Another adds where illiteracy rate is more than 20 percent and where industry contributes less than 10 percent of gross national product.

The lender of last resort in a country is the central bank.

If a company wants to finance some sort of international trade on credit it can ask a bank to issue a letter of credit in favour of its supplier. By this, the bank guarantees to make payment on a specific date as long as certain qualifications have been met such as providing satisfactory shipping documents. When the bank accepts the bill it writes "accepted" above the signature. The supplier can either hold the bill to maturity - whereupon the company pays the supplier - or discount the accepted bill with another bank which will either hold it as an investment or trade it on the secondary market.

In options trading this measures the percentage change in the premium for a given percentage fluctuation in the price of the underlying.

Fund are raised to take over a company and that company's assets are used as collateral (or as leverage) for the borrowing. The purchaser then repays the loans out of the acquired company's cash flow. Or by selling its assets.

The London Interbank Offered Rate (LIBOR) is the rate at which banks are prepared to lend to each other for specified maturities within the London market. LIBOR is also fixed daily for reference purposes and is a key interest rate level used for setting rates for loans and floating rate notes and for calculating cash settlements of certain interest rate derivative instruments. LIBID is the London Interbank Bid rate, the rate at which banks take deposits from each other. LIMEAN is the London Interbank Mean Price.

The right to take assets to cover an unpaid debt. See Prior Lien.

An instruction to act in a market. An order stipulating that the deal should be executed at a certain level and under certain specified conditions.

E.g.s are: Normal Order (N/O), Stop Loss (S/L), One Cancels the Other (OCO), Buy after Sell (B/S), Sell after Buy (S/B), Fill or Kill (FOK), All or None and Alternative Order.

Limit orders are normally valid until a certain time specified by the counterparty or Good Till Cancelled (GTC) and can be passed on to other financial centres for possible execution in other time zones.

The maximum advance and decline from a previous day's settlement price allowed in one trading session are known as limit up and limit down. Some markets do not trade again during the session after a limit up/down move unless prices fall (or rise). Other markets suspend trading temporarily when limits are hit and then reopen with expanded limit levels. See Daily Price Limit.

A restriction of the owner's loss in the business to the amount of capital invested.

A liquidity margin is a good faith performance guarantee. Lenders, in repurchase agreements, often seek such a margin from borrowers perhaps by receiving securities in excess of the money borrowed.

The risk a dealer has of not being able to unwind a position or enter into a position at a desired point of time.

A security which has been admitted to the listing of a stock exchange and can therefore be traded in the stock market.

Required by the stock exchange before a share is listed on the stock exchange and ready to trade. Each stock exchange sets it own listing requirements and criteria include considerations such as number of publicly held shares, number of shareholders, price and trade volume of that particular share and the company's aggregate before tax earnings. If companies do not meet these requirements, shares may be traded in the Over the Counter market.

Liquefied Natural Gas. Natural gas that has been liquefied by refrigeration or pressure to facilitate storage or transport. Generally consists of methane.

Funds set aside to cover anticipated loan losses which appear on a bank's income statement as an operating expense. See Non-Performing Loan.

Individual traders operating on futures or options exchanges purely for their account.

An investor is locked in when he finds a potential profit is reduced if he disposes of the security, e.g. through imposition of a tax measure. Also where he cannot establish or unwind a position due to a limit move. See Limit Up/Limit Down.

An economic treaty between the European Community and the African, Caribbean and Pacific group of developing countries (ACP). If offers duty free access to the EC by some 70 ACP nations. It also provides programmes for financing export shortfalls, mining products and financial aid.

A position showing a purchase or an excess of purchases over sales in anticipation of a rise in prices. A long position can be closed out through the sale of an equivalent amount. See Short Position.

Liquefied Petroleum Gas. Light hydrocarbons from oil-bearing strata which are gaseous at normal temperatures but which are liquefied by refrigeration or pressure to facilitate storage or transport. Mainly propane and butane.

The lowest balance of funds which a clearing house of the futures exchange or brokerage firm will allow a counterparty when trading on margin. Should an unrealised loss be reported, the counterparty is required to bring the account back to the maintenance margin level or the initial margin level. This demand is known as a maintenance or margin call.

An account enabling a market participant to trade futures contracts without having the full amount of funds available. Both counterparties (buyer & seller) are required to settle a downpayment to the brokerage firm or the clearing house of the futures exchange once a futures contract is concluded. This downpayment is known as the initial margin. The futures position is thereafter marked to market on a daily basis against closing prices and an unrealised profit or loss is calculated (Variation Margin). Should an unrealised loss be reported, the margin account will subsequently be reduced. Should the account fall below the minimum maintenance margin, the brokerage firm or exchange will make a margin or maintenance call to demand the counterparty to bring funds back to the required level. Opposite to Cash Account.

A call made by the clearing house of a futures exchange to a counterparty whose margin account has fallen below the minimum requirement or the Maintenance Margin. Also referred to as a maintenance call.

Trading without having to settle the full amount by the use of a Margin Account.

Total value of a company's securities at current prices quoted on a stock exchange. Hence, it is the total number of shares issued multiplied by the market price. Also, can denote the total valuation of the whole of a stock exchange's securities or the total value of one sector of a stock exchange's securities.

Occurs where demand and supply in free markets determine the allocation of resources. However, most countries impose some limitations within this economic system. See Mixed Economy, Planned Economy, State Planning, Parastatal.

Conditions of supply and demand which operate in a free market to determine prices through the decisions of buyers and sellers, lenders and borrowers.

Recognised financial institution or individual making buy and sell quotations on the secondary market.

Price forecasting tool that provides an on-line graphic representation summarising the day's activity, showing volume that occurs at specific price levels broken down to the nearest half hour.

Signals the mood of the market. In an uptrend, buyers are stronger than sellers and prices continue to advance. This type of market sentiment is bullish and the market is on a bull run.

In a downtrend, sellers are stronger than buyers and prices continue downwards. Here, market sentiment is bearish and the market is on a bear run.

There are various descriptions, or tones, used to report the strength of a whole market, a sector of that market of individual prices. They include such terms as weak, soft, steady, firm and strong.

General direction, ignoring short term fluctuations, of price movements overall in a market.

The amount or percentage added to the offer price when a customer buys from a broker or marker in the OTC market, which is regarded as a type of commission. Also used to describe market makers adjusting their prices upwards to reflect changing market conditions. Opposite to Markdown.

The initial agreement signed between two parties proposing to enter into swap agreements, which defines all criteria for future transactions such as references for fixing rates, status of counterparties, and so forth.

These are notes issued by the major issuers of directly placed commercial paper. It is a variable rate demand note issued to bank trust departments who often have various small sums to invest in the market. These notes provide a convenient way to combine these investments.

The date on which payment of the principal is made.

The amount to be paid back at maturity: in bond trading also called principal.

*Mercado Comun del Sur (Southern Common Market). Aims for Latin American free trade zone, to be operational by 1995. Members are Argentina, Brazil, Paraguay and Uruguay.

A type of second tier funding capital midway between debt and equity in that it offers a higher interest rate than senior debt but provides a lower long term return than equity. This allows large deals to be structured in the best

Suitable method for investors and lenders. Often used in management buyouts.

Study of the economic action of individual firms and small well defined groupings of individuals and sectors.

A minor equity interest comprising less than half the shares in a company which is not controlled by the holder company. Opposite to Majority Interest.

A mismatch shows when there is a difference in maturities of funds borrowed and funds invested. A mismatched book occurs when short and long positions do not complement each other. See Matched Book.

A note on which coupon re-fixes and the reference rate are mismatched with one another, e.g. a note re-fixing against six month LIBOR on a monthly basis.

In technical analysis, a type of oscillator that is used to measure the rate of change - as opposed to the actual price level. The momentum indicator is the difference between the price of the instrument today and the price in the previous determined periods. This positive or negative difference is plotted around a zero line. It is used to signal overbought or oversold conditions as well as entry and exit points.

Theory which advocates strict control of money supply as the major weapon of monetary policy, especially against inflation.

Management by a central bank of a country's money supply to ensure the availability of credit in quantities and at levels consistent with specific national objectives. The bank's tools include open market operations in the money market, intervention in foreign exchange and controls over financial institutions via interest rate ceilings and curbs on lending. See separate entries such as "Germany - Key Interest Rates" for the Group of 10 nations and Switzerland.

Essentially a volume weighted Relative Strength Index which attempts to measure the strength of money entering and leaving the market. It quantifies price/volume momentum in the same way that the strength index quantifies price momentum but differs from that index in two ways: 1) price is the average of the high, low and close rather than the close and 2) price is weighed by the volume.

A wholesome market for the buying and selling of money. Money market paper is predominantly negotiable and traded just like any other product. The market is nowadays international as opposed to earlier insular domestic centres. At the short end, stretching from one to six months, the field not taken by interbank deposits and treasury paper is dominated by negotiable CDs (Certificates of Deposit), BAs (Bankers Acceptances), CP (commercial paper) and repurchase agreements. Short term money markets are the main determinant of a nation's overall interest rate structure. Maturities extend out to one year.

Total stock of money in an economy according to various definitions, known as M0, M1, M2, M3, M4. See separate entries such as "Germany - Money Supply" for the Group of Five nations.

A term used when central banks and governments aim to influence market participants to do what they wish by persuasion rather than by coercion.

The suspension or delay, by the borrower, of principal repayments and possibly interest due, following the need to settle economic, monetary and financial affairs. If it is determined that interest will in fact be paid, then banks can continue to classify the loan as a performing asset.

A security backed by, or secured by, a pool or package of mortgage loans. Monthly payments of principal and interest from the underlying pool of mortgages is passed along to the holder of the security.

Originate, sell and service mortgages secured by either residential or commercial real estate.

An advance of funds to a borrower secured by the pledge of specific real estate. The pledge ends when the debt is discharged.

Yield based on the receipt of monthly cash flows of principal and interest.

Undertaking by two countries to give each other the maximum tariff concessions on their mutual trade which they already grant to other countries.

Medium term notes. Borrowing in the medium term (usually out to about five years) typically issued under a similar borrowing facility as for commercial paper. Also EMTN (Euro MTNs).

A publicly owned company which operates commercially in a number of countries outside its own base. Usually its activities in each country encompasses all aspects of production of its goods and services. Such companies are often listed on more than one stock exchange or have shares available via depositary receipts. See American Depositary Receipt, European Depositary Receipt.

U.S. equivalent of the U.K. unit trust. A mutual fund is often an Open End Management Company which polls together funds from many investors to establish a diversified portfolio of investments. After the Initial Public Offering, it continuously sells and redeems its shares while investing the combined contributions from the public at large in various securities and pays them dividends in proportion to their holdings. The shares are managed by a portfolio manager. The price of the mutual fund is calculated as a total portfolio value having taken into consideration the value of each security in the portfolio. This figure, the net asset value, is one unit value of one share in the mutual fund. There are several types of mutual funds. See Closed End Company, Balanced Fund.