Forex Glossary of Terms L to O

Lay Off

To carry out a transaction in the market to offset a previous transaction and return to a square position.

LDC

Less developed countries, often used with respect to secondary debt market.

Leading Indicators

Statistic that are considered to precede changes in economic growth rates and total business activity, e.g. factory orders.

Leads and Lags

The effect on foreign trade payments of an anticipated move in the exchange rate, normally a devaluation. The importers speeden up the payment for the imports and exporters delay recieving payment for the exports.

Liability

In terms of foreign exchange, the obligation to deliver to a counterparty an amount of currency either in respect of a balance sheet holding at a specified future date or in respect of an un-matured forward or spot transaction.

LIBOR (London Inter Bank Offer Rate)

British Bankers’ Association average of interbank offered rates for dollar deposits in the London market based on quotations at 16 major banks. Effective rate for contracts entered into two days from date appearing.

LIFFE

London International Financial Futures Exchange.

Limit Order – Reserved Day Trading Deal

An order to perform a Day Trading deal at a rate pre-defined by the customer, when and if such rate comes up in real market time. The Limit rate is superior to the existing rate at the time of reservation. The reservation order lasts for a period defined by the customer, and is associated by the necessary collaterals to facilitate the potential Day Trading deal, when and if activated, under the pre-defined terms.

Limited Convertibility

When residents of a country are prohibited from buying other currencies even though non-residents may be completely free to buy or sell the national currency and the foreign institutional investors also have the liberty to buy and sell shares on the stock exchange of that country.

Liquidation

Any transaction that offsets or closes out a previously established position.

Liquidity

The ability of a market to accept large transactions without having any major impact on the interest rates.

Long

A market position where the Client has bought a currency he previously did not own. For example: long Dollars.

M0

Cash in circulation . Only used by the UK.

M1

Cash in circulation plus demand deposits at commercial banks. There are variations between the precise definitions used by national financial authorities.

M2

Includes demand deposits time deposits and money market mutual funds excluding large CDs.

M3

In the UK it is M1 plus public and private sector time deposits and sight deposits held by the public sector.

M4

In the US it is M2 plus negotiable CDs.

Make a Market

A dealer is said to make a market when he quotes both the bid and offer prices at which he stands ready to buy and sell.

Managed Float

When the monetary authorities intervene regularly in the market to stabilise the rates or to push the exchange rate in a required direction. It is also called the dirty float which we have in India.

Margin

Collateral that the holder of a position in securities, options, Forex or futures contracts, has to deposit to cover the credit risk of his counterparty. Other definitions to MARGIN, used in other areas are:
(1) Difference between the buying and selling rates, also used to indicate the discount or premium between spot or forward.
(2) For options, the sum required as collateral from the writer of an option.
(3) For futures, a deposit made to the clearing house on establishing a futures position account.
(4) The percentage reserve required by the US Federal Reserve to make an initial credit transaction.

Margin Call

A demand for additional funds to cover positions

Marginal Risk

The that a customer goes bankrupt after entering into a forward contract. In such an event the issuer must close the commitment running the risk of having to pay the marginal movement on the contract.

Mark – To – Market

The profits and/or losses are tallied at the end of the session according to the closing prices of the security and the account is “marked to the market” daily. The party will be called upon to make good the losses if there has been an adverse movement in the prices and it can book the profits in case there has been a favorable movement in the prices.

Market Value

Market value of a forex position at any time is the amount of the domestic currency that could be purchased at the then market rate in exchange for the amount of foreign currency to be delivered under the forex Contract.

Maturity

Date for settlement of the transaction which is decided at the time of entering into the contract.

MITI

Japanese ministry of International Trade & Industry.

MM

Money Markets

Money Supply

The amount of money in the economy, which can be measured in a number of ways. In India we have four measures of money supply i.e M1, M2, M3, M4.

Mutual fund

An open-end investment company. Equivalent to unit trust.