Financial Glossary - N

Naive diversification: A strategy whereby an investor simply invests in a number of different assets and hopes that the variance of the expected return on the portfolio is lowered.

Naked call option writing: Options sold, without owning the actual underlying product (versus covered call option writing).

Naked option strategies: An unhedged strategy making exclusive use of one of the following: Long call strategy (buying call options), short call strategy (selling or writing call options), Long put strategy (buying put options ), and short put strategy (selling or writing put options). By themselves, these positions are called naked strategies because they do not involve an offsetting or risk-reducing position in another option or the underlying security.

NASD: The National Association of Securities Dealers, Inc. This is the American self-regulatory organization of the securities industry responsible for the regulation of NASDAQ and the over-the-counter markets.

NASDAQ: The National Association of Securities Dealers Automated Quotations System, the electronic, over-the-counter, screen-based communications system used by the second-largest U.S. securities market.

NASDAQ:
National Association of Securities Dealers Automatic Quotation System. An electronic quotation system that provides price quotations to market participants about the more actively traded common stock issues in the OTC market. About 4,000 common stock issues are included in the NASDAQ system.

National Futures Association (NFA): The futures industry self-regulatory organization established in 1982.

Nationalization:
A government takeover of a private company.

Natural logarithm:
Logarithm to the base e (approximately 2.7183).

Nearby: The nearest active trading month of a financial or commodity futures market.

Nearby futures contract:
When several futures contracts are considered, the contract with the closest settlement date is called the nearby futures contract. The next futures contract is the one that settles just after the nearby futures contract. The contract farthest away in time from the settlement is called the most distant futures contract.

Negative amortization:
A loan repayment schedule in which the outstanding principal balance of the loan increases, rather than amortizing, because the scheduled monthly payments do not cover the full amount required to amortize the loan. The unpaid interest is added to the outstanding principal, to be repaid later.

Negative convexity:
A bond characteristic such that the price appreciation will be less than the price depreciation for a large change in yield of a given number of basis points.

Negative covenant:
A bond covenant that limits or prohibits altogether certain actions unless the bondholders agree.

Negative duration:
A situation in which the price of the MBS moves in the same direction as interest rates.

Negative pledge clause:
A bond covenant that requires the borrower to grant lenders a lien equivalent to any liens that may be granted in the future to any other currently unsecured lenders.

Negative Pledge Provision: A protective provision written into the trust deed of a company's debenture issue, providing that no subsequent mortgage bond issue may be secured by all or part of the company's assets unless at the same time the company's debentures are similarly secured.

Neglected firm effect: The tendency of firms that are neglected by security analysts to outperform firms that are the subject of considerable attention.

Negotiable: A certificate that is transferable by delivery and which, in the case of a registered certificate, has been duly endorsed and guaranteed. Transferable from one party to another.

Negotiated certificate of deposit:
A large-denomination CD, generally $1MM or more, that can be sold but cannot be cashed in before maturity.

Negotiated markets: Markets in which each transaction is separately negotiated between buyer and seller (i.e. an investor and a dealer).

Negotiated offering: An offering of securities for which the terms, including underwriters' compensation, have been negotiated between the issuer and the underwriters.

Negotiated sale: Situation in which the terms of an offering are determined by negotiation between the issuer and the underwriter rather than through competitive bidding by underwriting groups.

Negotiable order of withdrawal (NOW): Demand deposits that pay interest.

Net adjusted present value: The adjusted present value minus the initial cost of an investment.

Net advantage of refunding:
The net present value of the savings from a refunding.

Net advantage to leasing: The net present value of entering into a lease financing arrangement rather than borrowing the necessary funds and buying the asset.

Net advantage to merging: The difference in total post- and pre-merger market value minus the cost of the merger.

Net asset value (NAV): The value of a fund's investments. For a mutual fund, the net asset value per share usually represents the fund's market price, subject to a possible sales or redemption charge. For a closed-end fund, the market price may vary significantly from the net asset value.

Net assets: The difference between total assets on the one hand and current liabilities and non-capitalized long-term liabilities on the other hand.

Net benefit to leverage factor: A linear approximation of a factor, T*, that enables one to operationalize the total impact of leverage on firm value in the capital market imperfections view of the capital structure.

Net book value: The current book value of an asset or liability; that is, its original book value net of any accounting adjustments such as depreciation.

Net cash balance: Beginning cash balance plus cash receipts minus cash disbursements.

Net change: This is the difference between a day's last trade and the previous day's last trade.

Net earnings: That part of a company's profits remaining after all expenses and taxes have been paid and out of which dividends may be paid.

Net errors and omissions:
In the balance of payments accounting, net errors and omissions record the statistical discrepancies that arise in gathering balance of payments data.

Net financing cost:
Also called the cost of carrying or, simply, carry, the difference between the cost of financing the purchase of an asset and the asset's cash yield. Positive carry means that the yield earned is greater than the financing cost; negative carry means that the financing cost exceeds the yield earned.

Net float: Sum of disbursement float and collection float.

Net income: The company's total earnings, reflecting revenues adjusted for costs of doing business, depreciation, interest, taxes and other expenses.

Net investment:
Gross, or total, investment minus depreciation.

Net lease: A lease arrangement under which the lessee is responsible for all property taxes, maintenance expenses, insurance, and other costs associated with keeping the asset in good working condition.

Net operating losses: Losses that a firm can take advantage of to reduce taxes.

Net operating margin:
The ratio of net operating income to net sales.

Net period:
The period of time between the end of the discount period and the date payment is due.

Net present value (NPV): The present value of the expected future cash flows minus the cost.

Net present value of growth opportunities: A model valuing a firm in which net present value of new investment opportunities is explicitly examined.

Net present value of future investments:
The present value of the total sum of NPVs expected to result from all of the firm's future investments.

Net present value rule:
An investment is worth making if it has a positive NPV. Projects with negative NPVs should be rejected.

Net profit margin: Net income divided by sales; the amount of each sales dollar left over after all expenses have been paid.

Net Sales: Gross sales less any applicable excise taxes, returns, allowances, and discounts or rebates are given to customers.

Net salvage value:
The after-tax net cash flow for terminating the project.

Net working capital: Current assets minus current liabilities. Often simply referred to as working capital.

Net worth: Common stockholders' equity which consists of common stock, surplus, and retained earnings.

Netting: Reducing transfers of funds between subsidiaries or separate companies to a net amount.

Netting out:
To get or bring in as a net; to clear as profit.

Neutral period: In the Euromarket, a period over which Eurodollars are sold is said to be neutral if it does not start or end on either a Friday or the day before a holiday.

New York Stock Exchange (NYSE):
Also known as the Big Board or the Exchange. The exchange is the oldest in the United States, founded in 1792, and the largest. It is located on Wall Street in New York City.

New Issue:
A stock or bond issue sold by a company for the first time. Proceeds may be used to retire outstanding securities of the company or be used for a new plant or equipment or for additional working capital. New debt issues are also offered by governments.

New-issues market:
The market in which a new issue of securities is first sold to investors.

New money:
In a Treasury auction, the amount by which the par value of the securities offered exceeds that of those maturing.

Next futures contract:
The contract settling immediately after the nearby futures contract.

Nexus (of contracts):
A set or collection of something.

NM: Abbreviation for Not Meaningful.

No load mutual fund: An open-end investment company, shares of which are sold without a sales charge. There can be other distribution charges, however, such as Article 12B-1 fees. A true "no load" fund will have neither a sales charge nor a distribution fee.

Noise: Price and volume fluctuations that can confuse interpretation of market direction.

No-load fund:
A mutual fund that does not impose a sales commission.

No load mutual funds: Mutual funds which can be purchased without commission. Typically, these are found at banks, trust companies, some insurance companies and some independent fund companies.

No Par Value (npv):
A common stock that has no stated face value. This is the usual practice in Canada so it is assumed and not always stated on the share certificate.

Nominal: In name only. Differences in compounding cause the nominal rate to differ from the effective interest rate. Inflation causes the purchasing power of money to differ from one time to another.

Nominal annual rate:
An effective rate per period multiplied by the number of periods in a year.

Nominal cash flow:
A cash flow expressed in nominal terms if the actual dollars to be received or paid out are given.

Nominal exchange rate:
The actual foreign exchange quotation in contrast to the real exchange rate that has been adjusted for changes in purchasing power.

Nominal interest rate:
The stated interest rate, which does not take inflation into consideration.

Nominal measures:
The most basic of methodologies for risk management and represents a risk position based on the nominal amount or face amount of the transactions.

Nominal price:
Price quotations on futures for a period in which no actual trading took place.

Non-cumulative preferred stock:
Preferred stock whose holders must forgo dividend payments when the company misses a dividend payment.

Non-financial services:
Include such things as freight, insurance, passenger services, and travel.

Non-insured plans:
Defined benefit pension plans that are not guaranteed by life insurance products.

Non-parallel shift in the yield curve: A shift in the yield curve in which yields do not change by the same number of basis points for every maturity.

Non-reproducible assets: A tangible asset with unique physical properties, like a parcel of land, a mine, or a work of art.

Non-tradables: Refer to goods and services produced and consumed domestically that are not close substitutes to import or export goods and services.

Non-cash charge: A cost, such as depreciation, depletion, and amortization, that does not involve any cash outflow.

Non-competitive bid: In a Treasury auction, bidding for a specific amount of securities at the price, whatever it may turn out to be, equal to the average price of the accepted competitive bids.

Non-diversifiability of human capital:
The difficulty of diversifying one's human capital (the unique capabilities and expertise of individuals) and employment effort.

Non-diversifiable risk: Risk that cannot be eliminated by diversification.

Non-marketed claims:
Claims that cannot be easily bought and sold in the financial markets, such as those of the government and litigants in lawsuits.

Non-recourse:
Without recourse, as in a non-recourse lease.

Non-redeemable:
Not permitted, under the terms of the indenture, to be redeemed.

Non-refundable:
Not permitted, under the terms of the indenture, to be refundable.

Non-systematic risk: Nonmarket or firm-specific risk factors that can be eliminated by diversification. Also called unique risk or diversifiable risk. Systematic risk refers to risk factors common to the entire economy.

Normal annuity form:
The manner in which retirement benefits are paid out.

Normal backwardation theory:
Holds that the futures price will be bid down to a level below the expected spot price.

Normal probability distribution:
A probability distribution for a continuous random variable that forms a symmetrical bell-shaped curve around the mean.

Normal portfolio:
A customized benchmark that includes all the securities from which a manager normally chooses, weighted as the manager would weight them in a portfolio.

Normal random variable:
A random variable that has a normal probability distribution.

Normalizing method:
The practice of making a charge in the income account equivalent to the tax savings realized through the use of different depreciation methods for shareholder and income tax purposes, thus washing out the benefits of the tax savings reported as final net income to shareholders.

Note:
Debt instruments with initial maturities greater than one year and less than 10 years.

Note agreement:
A contract for privately placed debt.

Note issuance facility (NIF):
An agreement by which a syndicate of banks indicates a willingness to accept short-term notes from borrowers and resell these notes in the Eurocurrency markets.

Notes to the financial statements:
A detailed set of notes immediately following the financial statements in an annual report that explain and expand on the information in the financial statements.

Notice day: A day on which notices of intent to deliver pertaining to a specified delivery month may be issued.

Notification date:
The day the option is either exercised or expires.

Notional principal amount:
In an interest rate swap, the predetermined dollar principal on which the exchanged interest payments are based.

Novation:
Defeasance whereby the firm's debt is canceled.

NPV profile:
A graph of NPV as a function of the discount rate.