Glossary - I

Illiquid
Bond or other security that is not traded actively. May be referred to as traded by appointment only.

Implied volatility
The derived volatility of an asset based on the option premiums quoted by other option traders in the market.

In the money
A call or put option where the exercise price is respectively below or above the current market price of the underlying security – i.e. it has positive intrinsic value.

Income bonds
Securities on which interest is only payable out of profits.

Income drawdown
Also referred to as pension fund withdrawal. This allows investors to delay buying an annuity (until age 75 at the latest) and to take an income direct from their pension fund at retirement. The Inland Revenue sets minimum and maximum levels of income that can be taken from the fund each year. Within these limits, the investor can choose any level and change the amount drawn at any time. These limits are set at the outset and will apply for the first three years. They are reviewed every three years thereafter to take into account the investor’s age and the value of his or her fund.

Income units
Units in a unit trust which entitle the investor to regular payments of income.

Index
A statistical tool that measures the state of the stock market or the economy based on the performance of stocks or other meaningful components, such as the Dow Jones Industrial Average.

Index funds
Funds which seek to mirror the returns of a market index by investing directly in the securities that make up that index. See also tracker funds.

Index linked gilt
These differ from conventional gilts because the interest payments and the capital are adjusted in line with the Retail Prices Index. This means that both the interest and the principal paid on redemption by these gilts are adjusted to take into account any accrued inflation since the gilt’s issue.

Indexation relief
See taper relief

Individual Savings Account (ISA)
A tax-efficient environment in which a variety of investments can be held. The two main types are Maxi and Mini.

Inflation
Term used to describe the a general rise in the price level of goods and services, usually as measured by the Consumer Price Index, which leads to a decrease in the purchasing power of money.

Initial charge
The charge levied on investors by a fund manager when units or shares in a fund are purchased. Also often known as front-end load.

Initial offer
The first offer made by a company for another company’s shares. If the offer becomes successful, it will then go unconditional and eventually become compulsory.

Initial public offering (IPO)
An offering of shares in the equity of a company to the public for the first time. A type of flotation.

Inland Revenue
The organisation responsible for the efficient administration of tax in the UK.

Insider dealing
The illegal act of buying and selling shares on the basis of confidential inside information not available to other investors.

Instalment payment
Means the additional payment for a partly paid security (not a nil-paid security) that can results in either the shares being fully paid or having another instalment paid towards their being fully paid shares.

Intangible asset
An asset which has no physical substance. Examples include goodwill, patents, trademarks and copyrights.

Inter-dealer broker
A member of the London Stock Exchange that acts as a link between firms to enable them to trade with each other anonymously.

Interest / interest rate
Cost of using money, expressed as a rate per period of time (usually per year).

Interim dividend
A dividend declared and paid before annual earnings have been determined, generally half-yearly.

Interim results
These are released after the first six months of the financial year by all listed companies. They tend to concentrate on profitability or loss, and may or may not be used to justify an interim dividend.

Intermediary
A person or institution empowered to make investment decisions for others. These specialists are knowledgeable about investment alternatives and can achieve a higher return than the average investor can.

Internal Rate of Return (IRR)
Discount rate at which present value of a future cash flow of an investment equals the cost of that investment.

International Retail Service (IRS)
Provided by London Stock Exchange to allow access to trading in international stocks, with dealing and settlement in sterling. Stock is held and settled through CREST.

International Swaps and Derivatives Association (ISDA)
Maintain the standard master agreements executed by each counterparty in most swaps. Individual terms and conditions can be added to each transaction and documented in a supplemental agreement.

Intrinsic value
The difference between an option’s exercise price and the current market price of the underlying security.

Inverse floater swap
An interest rate swap under which one counterparty pays fixed and receives a floating rate indexed negatively to a reference index such as LIBOR. As LIBOR rises, the fixed payer would receive less; as it falls, he would receive more.

Investment
The use of capital to create more money through income-producing vehicles or more risk-oriented ventures. The Financial Services and Markets Act 2000 lists regulated investments, including shares, bonds, futures, options, life assurance and pensions.

Investment business dealing
Advising, dealing or managing investments. Those who do so need to be authorised by FSA.

Investment club
An organisation which consists of a group of people who meet on a regular basis to pool their money and investment ideas, thus benefiting from shared administration costs.

Investment fund
A fund of funds, owned by one or more investors, which is managed as one entity by one or more managers. The legal structure of the fund can take many forms, including unit trusts, investment trusts and OEICs.

Investment grade
A credit rating given to a bond which indicates that the agency giving the rating thinks the issuer has strong creditworthiness.

Investment Services Directive (ISD)
European Union directive imposing common standards on investment businesses.

Investment trust
A listed company that invests in the shares of other companies.

IPO
See initial public offering

Irredeemable
Debentures, gilts and loan stock which have no fixed redemption date or are undated. For this reason, they are generally only repayable at the option of the borrower, or with companies, on liquidation or in special circumstances such as a takeover.

ISA
See Individual Savings Account

ISA regulations
The Individual Savings Account Regulations 1998 (statutory instrument 1998 No. 1870) and any other rules and regulations relating to Individual Savings Accounts (ISAs).

ISD
See investment services directive

Issue price
The price at which shares are offered to investors when a company floats on the stock market.

Issuer
Legal entity that acts as the borrower for a securities issue.

Issuer bid
An offer by an issuer to buy back some of its own securities. This is usually done because the company feels the market is undervaluing its securities.