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Leverage |
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 When
investors borrow funds to increase the amount they
have invested in a particular position, they use
leverage. Sometimes managers use leverage to enable
them to put on new positions without having to take
off other positions prematurely. Managers who target
very small price discrepancies or spreads will often
use leverage to magnify the returns from thes e
discrepancies.
Leverage both magnifies the risk of the strategy
as well as creates risk by giving the lender power
over the disposition of the investment portfolio.
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This may occur in the form of increased
margin requirements or adverse market shifts, forcing
a partial or complete liquidation of the portfolio. The
amount of leverage used by the fund is commonly expressed
as a percentage of the fund. For example if the fund has
?1 million and borrows another ?2 million to bring the
total invested to to ?3 million, then the fund is leveraged
200% |
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LIBOR |
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London Inter Bank Offered Rate. |
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Life Insurance
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A policy that will pay a specified
sum to beneficiaries upon the death of the insured |
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Liquidity |
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1) The degree to which an asset
or security can be bought or sold in the market without
affecting the asset's price. Liquidity is characterized
by a high level of trading activity.
2) The ability to convert an asset to cash quickly. Investing
in illiquid assets is riskier because there might not
be a way for you to get your money out of the investment.
Examples of assets with good liquidity include blue chip
common stock and those assets in the money market. A fund
with good liquidity would be characterised by having enough
units outstanding to allow large transactions without
a substantial change in price. |
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