Competitive Exams: International Banking Terminology L to M
- LIBOR: Libor stands for London Inter-Bank Offered Rate. This is a favorable interest rate offered for US dollar or Eurodollar deposits between groups of London banks. It is an international interest rate that follows world economic conditions and is defined by the maturity of its deposit term (i.e.. 30-day LIBOR, 60-day LIBOR). This market allows banks with liquidity requirements to borrow quickly form other banks with surpluses. The LIBOR is officially fixed once a day by a group of large London banks, but the rate changes throughout the day. The difficulty with some LIBOR based loans is that the terms can be based upon set dollar amounts to draw-down or repay at specific dates.
- Lien: An encumbrance against property form money due, either voluntary or involuntary.
- Line of Credit: A pre-approved loan authorization with a specific borrowing limit based on creditworthiness. A line of credit allows borrowers to obtain a number of loans without re-applying each time as long as the total amount of funds does not exceed the credit limit.
- Loan to Value (LTV): The unpaid principal balance of a loan on property divided by the asset's appraised value. Generally, the lower the LTV the move favorable the term and interest rate of the loan. For example, on a $100, 000 building, with a note due of $80, 000, the LTV ratio would be 80%.
- Margin: The number of percentage points a lender adds to an index value to calculate the interest rate charged on a loan. Also knows as the spread.
- Maturity: The date on which the principal balance of a loan becomes due and payable.
- Money Market Fund: An open ended mutual fund that invest in short-term debts and monetary instruments such a Treasury bills and pays money market rates of interest. These are usually NOT insured by the FDIC.