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Balance of Payments Glossary L-Q

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This page shows the Balance of Payments Glossary for entries L to Q.

L - Leasing

In the balance of payments accounts all financial leases and some long-term operating leases (for example, for aircraft) are regarded as loans to finance the purchase of goods. The lessor thus makes a loan to the lessee who subsequently repays this with interest. The lessee is regarded as the purchaser of the goods.

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Liabilities

In balance of payments terminology, liabilities are the financial claims of non-residents on the UK.

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LIBOR

London Interbank Offered Rate. The rate of interest at which banks borrow funds from other banks, in marketable size, in the London Interbank market.

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Local authorities

Elected councils responsible for the administration of certain services in particular areas within the UK.

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M - Merchanting

Merchanting is defined as the purchase of a good by a resident from a non-resident and the subsequent resale of the good to another non-resident, without the good entering the compiling economy. The difference between the purchase and sale price is recorded as the value of merchanting services provided.

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Monetary authorities

Institutions (usually central banks) which control the centralised monetary reserves and the supply of currency in accordance with government policies, and which act as their governments’ bankers and agents. In the UK this is equivalent to the Bank of England and part of the Treasury (the Exchange Equalisation Account). Data is not separately available in the UK accounts for monetary authorities.

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Monetary financial institutions (MFIs)

Banks and building societies.

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Monetary gold

See ‘Gold’.

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Money market

The market in which short-term loans are made and short-term securities traded. ‘Short term’ usually applies to periods up to one year but can be longer in some instances.

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Money market instruments

Money market instruments, within portfolio investment, generally give the holder the unconditional right to receive a stated, fixed sum of money on a specified date. These are short-term instruments usually traded at a discount; the discount being dependent upon the interest rate and the time remaining to maturity. Included are such instruments as acceptances, treasury bills, commercial paper and certificates of deposit.

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MTIC

VAT missing trader intra-community fraud. A systematic, criminal attack on the VAT system, which has been detected in many EU member states. In essence, fraudsters obtain VAT registration to acquire goods VAT free from other member states. They then sell on the goods at VAT inclusive prices and disappear without paying over the VAT paid by their customers to the tax authorities.

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N - Navy, Army and Air Force Institute (NAAFI)

A body which provides goods and services for use by the UK Armed Forces abroad.

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Net

In this presentation of the balance of payments accounts, the term ‘net’ is generally applied only to transactions in financial assets or liabilities. Purchases of assets are recorded net of sales; similarly with liabilities. In the current and capital accounts, where the operations of UK and foreign residents are taken together in particular transactions areas, the term ‘balance’ is used.

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Net errors and omissions

The item included to bring the sum of all balance of payments entries to zero. Also known as the balancing item.

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Non-monetary gold

See ‘Gold’.

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Non-produced, non-financial assets

Non-produced, non-financial assets, within the capital account, include land purchased or sold by a foreign embassy, patents, copyrights, trade marks, franchises and leases and other transferable contracts, but not finance leasing. Only the purchase and sale of such assets are recorded in the capital account; earnings from them are presented under trade in services.

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Novations

This term defines the reassignment of debt (for balance of payments, usually foreign debt) of public corporations to central government following the privatisation of the public corporation. This does not normally change the overall balance of payments situation as the debt is still regarded as a UK liability.

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NPISH

Non-profit institutions serving households.

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O - Official reserves

See ‘Reserve assets’.

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Offshores

The economic territory of a country consists of the geographic territory administered by a government; within this territory, persons, goods, and capital circulate freely. In the context of the UK, the offshore islands of the Channel Islands and the Isle of Man are subject to their own fiscal authorities and have their own tax systems, there are impediments to taking up residency, and they are not part of the EU. They are therefore not recognised as part of the economic territory of the UK for balance of payments purposes and are classified as non-resident in the UK.

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Operating leasing

Operational leasing (rental) covers resident/non-resident leasing (other than financial leasing), charter of ships, aircraft and transportation equipment without crew. Leasing of ships, aircraft and transportation equipment with crew are included in the transportation account.

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Ordinary share

The most common type of share in the ownership of a corporation. Holders of ordinary shares receive dividends. (See also ‘Equity’).

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Other financial intermediaries (OFIs)

A diverse group of units constituting all financial corporations other than depository corporations, insurance corporations, pension funds, and financial auxiliaries. They generally raise funds by accepting long-term or specialised types of deposits and by issuing securities and equity. These intermediaries often specialise in lending to particular types of borrowers and in using specialised financial arrangements such as financial leasing, securitised lending, and financial derivative operations.

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Other investment

Investment other than direct and portfolio investment. Includes trade credit, loans, currency and deposits and other assets and liabilities.

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P - Parent

In a balance of payments context this means a company with direct investments in other countries.

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Pension funds

The institutions that administer pension schemes. Pension schemes are significant investors in securities. Self-administered funds are classified in the financial accounts as pension funds. Those managed by insurance companies are treated as long-term business of insurance companies. They are part of S.125, the Insurance corporations and pension funds sub-sector of the financial corporations sector within the National Accounts.

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Portfolio investment

Investment in equity and debt securities issued by registered companies, other than that classed as direct investment, and in equity and debt securities issued by governments. A portfolio investment, unlike a direct investment, does not entitle the investor to any significant influence over the operations of the company or institution, and represents less than 10 per cent of the equity capital.

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Preference share

This type of share guarantees its holder a prior claim on dividends. The dividend paid to preference shareholders is normally more than that paid to holders of ordinary shares. Preference shares may give the holder a right to a share in the ownership of the company (participating preference shares). However in the UK they usually do not, and are therefore classified as bonds.

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Private sector

Private non-financial corporations, financial corporations other than the Bank of England, households and the NPISH sector.

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Promissory note

A security which entitles the bearer to receive cash. These may be issued by companies or other institutions. (See ‘Commercial paper’).

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Public corporations

These are public trading bodies which usually have a substantial degree of financial independence from the public authority which created them. A body is normally treated as a trading body when more than half its income is financed by fees. A public corporation is publicly controlled to the extent that the public authorities appoint a majority of the board of management or when public authorities can exert significant control over general corporate policy through other means. Since the 1980s many public corporations, such as British Telecom, have been privatised and reclassified within the accounts as private non-financial corporations.

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Public sector

Central government, local authorities and public corporations.

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Content from the Office for National Statistics.
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