Question

Explain the following terms: LIBOR, LIFFE, An underlying asset, Dry-ended operation, Indirect quotation, Price Interest Point, Spot price, Long position, Arbitrage?

Answer 1

1. LIBOR : It stands for London Interbank Offered Rate. It is a globally accepted benchmark interest rate for interbank borrowings. It is a reference interest rate for borrowings
2. LIFFE : It stands for London International Financial Futures and Options Exchange. It is the largest exchange for futures and options in London. Now it is named as ICE Futures Europe. It is under the ownership of Intercontinental Exchange (ICE).
3. UNDERLYING ASSET : It is a financial asset on which the price of the derivative is based. Derivatives are contracts derived from an underlying asset. Such assets can be a stock, currency, commodity etc
4. DRY-END OPERATION : It is a term used in finance to indicate the symptom of negative things in future. The operations can be for its solution.
5. INDIRECT QUOTATION : It is a type of currency quotation. In this quotation the value of domestic currency is expressed in terms of foreign currency.
6. PRICE INTEREST POINT : It is also known an PIP. It indicates the unit of change in the exchange rate in the currency quotation. It is the movement in the price in the exchange rate.
7. SPOT PRICE : It is the current market price at which an underlying asset ie, stock, commodity or currency is bought and sold.
8. LONG POSITION : Long position of stock means that the asset is bought and owned. But in short position the investor owes the stock but not actually purchased or owned it. In long position, the asset is purchased with an expectation that its value will increase in future.
9. ARBITRAGE : Arbitrage refers to simutaneous buying and selling of currencies, securities or commodities for taking the advantage of difference in the price in differnt markets for the same asset.