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Last Updated: Thursday, 15 April, 2004, 16:33 GMT 17:33 UK
Financial terms K - Q

We continue our tour through the baffling world of financial jargon.

From Knock-out to Quanto (they're both options by the way), it's the K - Q of everything you might want to know about finance.

And please, if there is anything you think we have missed out, drop us a line.

Knock-out Option
An option that has reached its expiry date and is now worthless.

A form of home ownership in which you buy a house or flat for a set number of years but the land it's on remains the property of the freeholder. At the end of the leasehold period the freeholder reclaims ownership of the property. Most flats are subject to leasehold.

Legal Expense Insurance
Insurance that covers the cost of private legal action.

Leveraged Buyout
A takeover in which the buyer borrows money to purchase a controlling interest in a company. Sometimes shortened to LBO.

Liquid Assets
Nothing to do with drink! How liquid you are depends on how much cash you have - the more the better! Shares and bonds could also be described as liquid assets, provided they are good quality ones and can easily be converted into hard currency.

When a company becomes insolvent, this is one of the courses available. In a members' voluntary liquidation, shareholders appoint a liquidator and the company's assets are sold and all debts, including interest, settled within 12 months. Other methods are a creditors' voluntary liquidation, which is initiated by shareholders, or a voluntary liquidation, which is ordered by a court. Liquidation is usually the end of the road for a company and it will then be removed from the companies' register.

Lloyd's of London
The world's longest-running insurance market. It is here that most of our policies are underwritten.

Loan to Value (LTV)
A mortgage term that describes the amount of money a lender will forward you as a percentage of your property's value. Banks and building societies tend to lend up to 95% of property value.

Short for mergers and acquisitions. It describes the process of companies either joining forces in a merger or of one company taking control of another in a takeover.

Market Value Weighted Index
An index in which each company's weighting is based on its market value. The FTSE All-Share is a good example of a market value weighted index.

Marginal Tax Rate
The highest rate of tax paid by an individual or company. Most simply described as the rate of tax you would pay on an extra pound earned.

Short for Management Buyout. This occurs when an existing management team takes over ownership of a company they already run.

Mechanical Breakdown Insurance (MBI)
Often referred to as an extended warranty, it is really an insurance policy that pays out if faults arise in a car.

Halfway between the bid and offer price for an asset. Neither buying nor selling takes place at the mid-price. It is used as a shorthand indication of share prices and allows the media to quote just one price per share without having to quote both selling and buying prices.

A loan where the borrower offers a property as security to a lender until the full amount is repaid.

Mortgage Broker
A person or company authorised to search the mortgage market for a deal that suits you. They can contact mortgage lenders on your behalf to make arrangements to complete a loan. They charge a fee for their services, though often this will be paid as commission from the lender to the broker.

Mortgage Indemnity Guarantee (Mig)
An insurance policy taken out at the same time as a mortgage. It protects the lender against loss if you stop paying the loan. It offers no benefit to you at all, which begs the question why do we have to pay the premiums? Lenders tend to insist on Migs on loans over 75% of the value of a home. The good news is that compulsory purchase of Migs is becoming increasingly less common.

Mortgage Protection Insurance
An insurance policy that will pay your monthly mortgage bill in the event that you can't.

A company that is owned by its members. Building societies and friendly societies are mutuals as are some insurance companies.

Named Driver
A driver specified on a motor insurance policy, who is not the vehicle's owner.

National Association of Securities Dealers Automated Quotations. The Nasdaq's home is Wall Street, New York, and it was the world's first fully computer generated stock exchange. It deals in high-tech shares and counts Microsoft as its biggest member.

National Insurance Contributions (NI)
A tax that funds state safety nets like the National Health Service, state pensions and other benefits. NI is charged as a percentage of earnings.

Negative Equity
The moment your mortgage is worth more than your home you are said be in negative equity. It is never a good thing, but only becomes a real problem if you want to sell your home. Unless you can make up the deficit then your lender can block the sale.

New Issue
When a new company floats on the stock market - an IPO - it sells shares to the public and City institutions. The shares are called a new issue because, not unreasonably, they have been issued and they are new.

A type of property insurance that will replace lost or damaged items with equivalent new items.

Nihon Keizai Shimbun. Founded in 1876, the Nikkei index features the 225 leading stocks traded on the Tokyo Stock Exchange.

The name in which securities are registered and held in trust on behalf of the proper owner. This can be a useful way of holding shares. The nominee deals with all the nasty paperwork and leaves you to enjoy the profits - or commiserates with your losses. Some share perks are not available to shareholders who hold their certificates in a nominee account.

Established on 2 October 1995 by J P Jenkins Ltd, this London-based market deals in unlisted and unquoted securities - hence its name Ofex, which stands for Off Exchange. It is the third stock exchange in the UK, after the London Stock Exchange (LSE) and the Alternative Investment Market (AIM). Many of the riskier, lesser-known shares are listed on Ofex.

Offshore Investment
Any investment that is not directly subject to the UK tax system. Offshore investments tend to be made in regions with low tax burdens, like Jersey and Ireland. The investments are subject to UK tax law when the funds are brought back into the country.

Open-ended Investment Fund
Popular in the rest of Europe, but launched in the UK only in 1997, these funds are a mixture of investment trusts and unit trusts. They are companies which issue shares and use shareholders' money to buy shares in other companies. Like it says on the box, they are open-ended - if demand for shares exceeds supply, more shares are issued. They are often called Oeics (pronounced oiks), short for Open Ended Investment Companies.

A contract which gives the holder the right, but not the obligation, to buy stock, currency, debt, shares etc. at a specified price during a specified period of time. Once they have expired, options are worthless pieces of paper. Like futures, these are best left to the investors more comfortable with risk.

Ordinary Shares
Holding ordinary shares usually gives you the right to vote at the company's annual general meeting (AGM) and the right to any dividend payments (as long as they weren't bought at the time when the shares were ex-dividend). The share price is dependent upon market forces. If there are more people wanting to buy than sell, the share price will rise. If there are more people wanting to sell than buy, the price will fall. Ordinary shareholders' rights are unsecured. If the company goes bust, then the shareholders are last in line for any payout.

An investment term describing a share portfolio that, when compared against a benchmark, has a disproportionately large percentage of money invested in a single sector. If for example 80% of the shares you own are issued by water companies, you are overweight water when compared to FTSE All-Share.

PAYE (Pay As You Earn) Tax
The tax taken directly out of your pay packet. PAYE is paid by most workers, except the self-employed.

Penny Shares
As their name suggests, any share which costs less than 1. Recently the Financial Services Authority defined penny shares as being any share which is hard to buy or sell without affecting the price - more specifically, any share with a spread larger than 10%. Just because they are cheap does not necessarily make them a good value investment. In order to make even a small profit on them the share price must increase significantly to cover the wide spread.

Personal Equity Plans were the old government equity savings scheme. They were replaced in 1999 by Individual Savings Accounts (Isas).

Personal Allowance
In tax terms this is the amount of money you can receive before you start paying tax. For the tax year 2004-2005 the personal allowance is 4,745. For the over 65s it's more, it's actually 6,830. And for those aged 75 and over it's 6,950.

Personal Possessions Cover
Insurance for smaller items such as cash, jewellery and luggage.

A private share sale, sometimes used to dispose of large blocks of shares.

Pluvius Insurance
Cover for loss as a result of bad weather, usually rain. It is normally taken out by organisers of large outdoor events.

Preference Shares
In the event of a company going under,
preference shareholders will take precedence over those with ordinary shares. These shares often do not carry voting rights but shareholders are guaranteed a fixed dividend.

Premium (Insurance)
When used in relation to insurance it is the amount you pay for a policy.

Premium (Investment Trust)
When used in relation to an investment trust a premium describes the excess value of a trust above the value of its underlying assets. The correct term is Premium to Net Asset Value. So if a trust owns 1m in shares but its market capitalisation is 1.2m it has a 200,000 premium. This is usually expressed per share.

Price Earnings Ratio (P/E Ratio)
The price earnings ratio is one way of valuing shares. It compares the price of the share with the earnings of the company. The p/e ratio can then be compared with other shares in the same sector of the stock market. A high p/e ratio indicates great things are expected from the company in question, but also suggests the share could be a risky investment.

Professional Indemnity Insurance
Insurance that protects against negligence at work. Usually taken out by lawyers and doctors.

Protected Fund
An investment fund that uses complex financial instruments to ensure that investors don't lose money. This protection comes at a cost, usually meaning lower returns if markets are strong.

Public Liability Insurance
Covers you for damage to other people or other people's property. It is normally included on motor insurance policies.

Quanto Option
option in one currency which pays out in another.


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