Financial Dictionary

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Labor Intensive

A company with significant labor cost in the production chain. Labor intensive companies are usually in hospitality and heavy industry business.

Laffer Curve

A theory, invented by Arthur Laffer, which determines the relationship between tax rate level and revenue that government will collect at that level. Laffer’s starting point is: the more the government collects from the people, the people will work less hard, or if the government collects it all, the people will not work at all, […]

Lambda

Used as a synonym for kappa, vega and sigma and refers to change in a price of an option, relative to 1% change in the volatility of the underlying security.

Lapse

Refers to time period in which insurance policy, right or a privilege is not active because of a failure to act.

Lead Time

The total time between the moment of placing an order and receiving the goods ordered.

Lead Underwriter

An investment or commercial bank with the primary directive for organizing stock offerings, IPO or secondary offers. Lead underwriter will usually try to establish a syndicate with another lending organizations or underwriters and thereby improve selling forces for a given issue. If the market shows great demand for the issuing shares, lead underwriter can collect […]

Leading Indicator

Refers to some economic factor that changes before the whole economy starts to change. Some of most popular leading indicators are stock prices, unemployment insurance claims, bond yields and production workweek. These indicators are very useful but are not always accurate.

Leakage

In investing term, refers to information, and releasing them to somebody before they are available to the general public.

LEAPS

Long-Term Equity Anticipation Securities or LEAPS are publicly traded long term stock options with expiration date longer than one year and up to three years. LEAPS are no different than standard options, except the expiration date which is much longer in the case of LEAPS. Strike prices of LEAPS are usually around 25% below or […]

Leaseback

An arrangement in which one party sells a property, and immediately leases it back from the purchaser.

Leg

Refers to order entry technique used by brokers, when a broker execute an option overlap order as two individual transactions and tries to profit from price fluctuation. Leg also refers to one side of an option spread, which may be short or long.

Legal Monopoly

An exclusive right to offer a service or a product granted to one company by the government. In return, the company agrees that the prices are regulated by the government.

Lemon

A low quality product, that does not function properly or does not meet the expectations.

Lessee

A person who leases an asset or a property from the owner. Lessee is also called tenant.

Leveraged Buyout (LBO)

Refers to a takeover, which is done with significant amount of borrowed money. LBO uses ratio 90%-10% in favor of loans. This high debt/equity ratio is allowed in order to allow large acquisitions without having to bind large amounts of money. Usually, the assets of an acquired company are used as collateral for the loans.

LIBOR

Refers to London Inter-Bank Offer Rate, which is the interest rate at which banks borrow money from each other in the London Inter-Bank market. This rate is fixed on a daily basis and is the world most widely used standard for short term interests.

Lien

A legal claim against the mortgaged property, a way of securing a loan. When the borrower is not able to meet the contract, bank has the rights to sell the asset and collect their money back and interest. Lien exist in two ways: 1. General lien is when the bank claims an asset until all […]

LIFO

An asset management method for sold or used assets. LIFO implies that assets which were produced or bought last, is used or sold first.

Limit move

Refers to maximum price fluctuation allowed by the exchange for a given futures contract in a single day.

Limit-On-Close Order

A buy or a sell order, for a specified amount of stocks at the market close time, but only if the price is at or above the specified price (for sell order), or at or below a specified price (for buy order).

Linear Chart

The basic type of chart used in finance. The chart is created by drawing a line between the dots which represents past prices, and the distance between the dots represents the same absolute change in price.