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- 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. In contrast, mathematical
programing can be used to select the best possible investment weights. Related: Markowitz diversification.
Naked option strategies - An unhedged strategy making exclusive use of one of
the following: Short call
strategy (selling or writing call 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. Related: covered option strategies. Antithesis of covered option.
Naked strategies - When you write an option
without owning the underlying asset. You
are naked because often you agreed to sell something that you do not own.
National Association of Securities
Dealers (N.A.S.D.) - Refers to over-the-counter trading. Nonprofit
organization formed under the joint sponsorship of the investment bankers' conference and the S.E.C. to comply with the
Maloney Act, which provided for the regulation of the O.T.C. market.
National
Association of Securities Dealers Automatic Quotation System (N.A.S.D.A.Q.)
- An electronic quotation system that provides price
quotations to market participants about the more actively traded common stock issues in
the O.T.C. market. About 4,000 common stock issues
are included in the N.A.S.D.A.Q. system.
National Futures Association (N.F.A.) - The futures industry self regulatory organization established in 1982.
National market - Related: internal
market
National Market System (N.M.S.) - Refers to over-the-counter trading. System of
trading O.T.C. stocks under the sponsorship of
the N.A.S.D.. Must
meet certain criteria for size, profitability and trading activity. More comprehensive
information is available for N.M.S. stocks than for non-N.M.S. stocks traded O.T.C. (high, low, and last-sale prices, cumulative volume figures, and bid and ask quotations throughout
the day), due to the fact that market-makers must
report the actual price and number of shares comprising
each transaction within 90 seconds vs. non-real-time reporting for non-N.M.S. stocks
(thus, last sale prices and minute-to-minute volume updates are not possible).
Nationalization - A government takeover of a private company.
Natural
- Used in the context of general equities. Customer
buyer or seller, versus a principal or profile interest. Legitimate, real.
Natural logarithm - Logarithm to the base e (approximately
2.7183).
Nearby
- The nearest active trading
month of a financial or commodity futures market. Related: deferred futures
Nearby futures contract - When several futures
contracts are considered, the contract with the
closest settlement date is called the nearby
futures contract. The next (or the "next out") futures contract is the one that settles just
after the nearby futures contract. The contract
farthest away in time from settlement is called the most distant futures contract.
"Need
the tick" - Used for listed equity securities. "Need the stock to trade up/down at
least one tick (1/8) in order to comply with such
regulations as those governing short sales/corporate repurchases."
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
carry - Related: net
financing cost
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. For example, a fixed rate mortgage may lose value as rates go down because of
prepayments.
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 M.B.S. 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.
Neglected firm effect - The tendency of firms that are neglected by security analysts to outperform firms that are
the subject of considerable attention.
Negotiated certificate of deposit - A large-denomination C.D., 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 (N.O.W.)
- 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 (N.A.V.) - 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 noncapitalized
long-term liabilities on the other hand.
Net benefit to leverage factor - A linear approximation of a factor, that enables one to operationalize the total impact
of leverage on firm value in the capital market imperfections view of 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 errors and omissions - In 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 carry 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
parity - Antithesis of gross
parity.
Convertibles: price of a convertible security including accrued interest
International: price of international security
including commissions, fees, stamp duty and other transaction costs, translated into U.S.
dollar amounts.
Net
period - The period of time between the end of the discount period and the date payment is due.
Net
position - The value of the position
subtracting out the initial cost of setting up the position. For example, if 100 options where purchased for $1 each and the option is
currently trading for $9 then the value of the net
position is $900 - $100 = $800.
Net present value (N.P.V.) - 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 N.P.V.s 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 N.P.V. Projects with negative N.P.V.s 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 transaction - Refers to over-the-counter
trading. Securities transaction where the quoted prices
include commissions (i.e., O.T.C.); looked at another way, the buyer and
seller do not pay fees or commissions in addition to
the print or quotation prices.
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
hedge - Hedge which is
expected to yield a dollar-neutral result of the combined position regardless of price change in any part of the
hedge securities. For any convertible trading at a premium, this ratio is less than 100%. The
higher the convertible premium, the lower a ratio must be to be neutral. See: delta.
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 (N.Y.S.E.) - Also known as the Big
Board or The Exchange. N.Y.S.E. composite index.
Composite index covering price movements of all new world common stocks listed on the New York Stock Exchange.
It is based on the close of the market on December 31, 1965 at a level of 50.00, and is
weighted according to the number of shares listed for each issue.
Print changes in the index are converted to dollars and cents so as to provide a
meaningful measure of changes in the average price of listed
stocks. The composite index is supplemented by separate indices for four industry
groups: industrial, transportation, utility, and finance.
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.
"News
out" - Refers to over-the-counter trading. A news story
concerning the stock being considered has recently been
posted on one of the news services, such as the Dow Jones news service or Reuters. A courtesy standard in trading is to mention that "news is out", in case
the other party is unaware of the new development.
Next day settlement - Transaction in which the contract is settled the day after the trade is executed. See: settlement date.
Next futures contract - The contract
settling immediately after the nearby
futures contract.
Nexus
(of contracts) - A set or collection of something.
Nikkei stock average - Mainly applies to international equities.
Price-weighted average of 225 stocks of the first section of the Tokyo Stock Exchange
started on May 16, 1949. Japanese equivalent of the U.S.'s Dow.
"No
Autex" - Used in the context of general equities. "No
buy or sell interest should be entered into the Autex
(advertising) system." Due to the fear that exposure of their inquiry will negatively
affect the price at which they hope to ultimately transact the trade,
hence disturbing the customer's picture.
No
book - Used for listed equity securities. Not much, if
any, stock is being bid for
or offered at the present time by customers nor the specialist.
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. Used in the context of general equities. Stock market activity caused by program trades, dividend rolls, and other phenomena not
reflective of general sentiment. Antithesis of real.
No-load
fund - A mutual fund
that does not impose a sales commission. Related: load fund, no
load mutual fund
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. Same as annual percentage rate.
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 interest
rate unadjusted for inflation.
Nominal
price - Price quotations
on futures for a period in which no actual trading took place.
Nominal quotation - Used in the context of general equities. Bid and offer prices
given by a market-maker for the purpose of
valuation, not as an invitation to trade; must be specifically identified as such by
prefixing the quotes F.Y.I. (for your information) or F.V.O. (for valuation only).
Non-cumulative
- Mainly applies to convertible securities. Type of preferred stock on which unpaid dividends do not accrue.
Omitted dividends are, as a rule, gone forever.
-
- Non-cumulative preferred stock
- Preferred
stock whose holders must forgo dividend payments
when the company misses a dividend payment. Related: Cumulative preferred stock
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. Related: insured
plans
-
- Nonmember
firm
- Used for listed equity securities. Brokerage firm
that is not a member of an organized exchange (N.Y.S.E.).
Such firms execute their trades
either through member firms, on regional
exchanges where they are members, or in the third market.
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.
Related: Parallel shift in the
yield curve.
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.
Noncash
charge - A cost, such as depreciation,
depletion, and amortization, that does not involve
any cash outflow.
Noncompetitive 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.
Nondiversifiability of human capital
- The difficulty of diversifying one's human capital (the unique
capabilities and expertise of individuals) and employment effort.
Nondiversifiable risk - Risk that cannot be
eliminated by diversification.
Nonmarketed claims - Claims that cannot be easily bought and sold in the
financial markets, such as those of the government and litigants in lawsuits.
Nonrecourse
- Without recourse, as in a non-recourse lease.
Nonredeemable
- Not permitted, under the terms of indenture, to be redeemed.
Nonrefundable
- Not permitted, under the terms of indenture, to be refundable.
Nonsystematic 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
deviate - Related: standardized
value
Normal probability distribution - A probability
distribution for a continuous random variable
that is forms a symmetrical bell-shaped curve around the mean. This distribution has no skewness or excess
kurtosis.
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 change 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.
Not a name with us - Refers to over-the-counter trading. Not a
registered market-maker in the security, especially in O.T.C. and convertibles, or having nothing real to do.
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 (N.I.F.) - 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.
Not
held order (N.H. order) - Mainly applies to international equities. Market or
limit order in which the customer does not desire to
transact automatically at the inside market
(market held) but instead has given the trader or floor broker (listed
stock) time and price discretion in executing on a
best efforts basis and will not hold the broker responsible if he misses the print within
his limits (limit not held) or obtains a worse price (market not held). The order is
marked "not held, disregard tape/D.R.T., take time" or bears any such qualifying
notation, excluding "or better". See: held
order.
Notice
day - A day on which notices of intent to deliver pertaining to a specified delivery month may be issued.
Related: delivery notice.
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 N.P.V.
as a function of the discount rate.
Glossary created by Campbell R. Harvey, Professor of Finance, Fuqua
School of Business at Duke University. |
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