Glossary of Terms

Alternative spelling of Napierian.

UK National Association of Pension Funds.

Options analysis.
Very similar to Natural logarithm.
The Napierian logarithm gives a result which is almost exactly the same as - but not identical to - the Natural logarithm.

US. A computerized system originally established by the National Association of Securities Dealers to facilitate trading by providing broker/dealers with current bid and ask price quotes on over-the-counter stocks and some listed stocks.

The NASDAQ stock market (previously denoted the National Association of Securities Dealers Automated Quotations) does not have a physical trading floor, instead, all trading on the NASDAQ exchange is done over a network of computers and telephones.

Sometimes written as Nasdaq.

(NAPF). A UK body set up to represent the interests of employer sponsored occupational pension schemes with government and with the media.

Economics.
A measure of the money value of the flow of goods and services produced in an economy over a specified period of time.

A UK tax paid by individuals and employers to secure certain benefits such as a state pension.

(NICs). A form of UK tax paid by employers, employees and the self-employed, nominally as a contribution to state pensions.

Options analysis.
The natural logarithm ln(x) is the logarithm to the base ‘e’, and mathematically the inverse function of the exponential function e^x.

So for example ln(100) = 4.60517...
And e^4.60517... = 100

Also sometimes known - loosely - as the 'Napierian logarithm'.

(Not to be confused with Lognormal, which is different.)

Net Asset Value.

Net profit Before Tax.

Accounting.
Net Book Value.
Sometimes also written in lower case as 'nbv'.

Non-deliverable forward foreign exchange contract.

Economics.
A good with an income elasticity of demand less than one.

Non-Executive Director.

Risk management.
A type of options hedging structure in which the net premium payable by the hedger is negative.

In other words, the net premium is an amount receivable by the hedger. The provider's profit - and the true cost to the hedger - is embedded within the related strike prices of the options from which the collar is constructed.

Accounting.
Where the value of the net assets acquired is greater than cost, the difference will represent a discount or negative goodwill.

A straight line relationship; the forecast or other dependent variable increases as the independent variable decreases.

A term used in loan documentation. It is a promise not to create a class of creditor that ranks above the lender in priority for repayment.
Usually this means that, for an unsecured loan, the borrower promises not to grant security to another, subsequent lender.

A situation in which market interest rates for longer term funds are lower than those for shorter maturities.

Also known as an Inverse yield curve.

In legal terms, the failure to do something that a reasonable person would do, or doing something that a reasonable person would not do.
A tort consisting of the breach of duty of care resulting in damage to the plaintiff.

A false statement of fact made honestly but carelessly.

A promise to pay money which is freely transferable without formality from one person to another.
So a negotiable instrument can be transfered simply by endorsement or by delivery (depending what type of negotiable instrument it is).

International trade.
Bank usually in the exporter’s country, assigned by the issuing bank to purchase or negotiate documents presented by the exporter.
The negotiating bank is usually the advising bank as well.

Law.
'No-one can give what he has not got.'
The general legal rule that a person who does not own property cannot confer it on another, except with the true owner's authority (for example as the true owner's agent).

There are also a small number of exceptions to this general principle.

1. An amount stated after the deduction of tax or of other related offsetting items.

2. Any aggregate or total amount. Usually, but not necessarily, implying that the calculation of the total amount included some negative (offsetting) items as well as positive items.

Net asset value.

(NAV). A method of valuing a business which is based on the sum of the values of each of its assets, less its total liabilities.

The current balance sheet of the business would normally be the starting point for a net asset valuation.

The (starting) book values of assets and liabilities in the balance sheet are then appropriately adjusted to reflect relevant current market values.
Further adjustments are then made for the addition of any other relevant assets and liabilities (not reflected in the starting balance sheet).

Total assets LESS Total liabilities.

(NBV). Accounting.
The net value of a fixed asset reported in financial statements.
For example, its historical cost purchase price LESS the accumulated provision for depreciation.

Netting systems.
A participant’s net credit or net debit position in a netting system is the sum of the value of all the transfers the participant has received up to a particular point in time minus the value of all the transfers the participant has sent.

If the difference is positive the participant is in net credit position. If the difference is negative, then the participant is in a net debit position.

The net credit or net debit position at settlement time is defined as the net settlement position.
These net positions may be calculated on a bilateral or multilateral basis.

Caps.

An alternative name for net profit.

1. Interest stated after offsetting tax effects, if any.
In this sense, net interest receivable means interest receivable stated after deducting any tax payable thereon.
In this context, net interest payable means interest payable stated after offsetting any tax relief enjoyed on the interest expense.

2. Interest (usually) payable, stated after deducting other offsetting interest (usually) receivable in the same period.

The risk of loss as a result of movements in the yield curve, such as a movement in the general level of interest rates.

(NOPAT). A measure of business profitability which is independent of the chosen capital structure, but which does take account of the taxation of the operating profits.

Often estimated as:
NOPAT = PBIT x (1-T)

where:
PBIT = profit before interest and tax; and
T = corporation tax rate.

The same as Net operating profit after tax (NOPAT).

(NPV). The total present value of all of the cash flows of a proposal - both positive and negative.
For example the expected future cash inflows from an investment project LESS the initial capital investment outflow at Time 0.

For example a project requires an investment today of $100m, with $120m being receivable one year from now.

The cost of capital (r) is 10% per annum.
The NPV of the project is calculated as follows:

PV of Time 0 outflow $100m = $(100m)
PV of Time 1 inflow $120m = $120m x 1.1^-1 = $109.09m
NPV = -$100m +$109.09m = +$9.09m

In simple Net Present Value analysis the decision rule would be that all positive NPV opportunities should be accepted, and all negative NPV opportunities should be rejected.
So the project in the example above would be accepted because its NPV is positive, namely +$9.09m.

However this assumes the unlimited availability of further capital with no increase in the cost of capital.
A more refined decision rule is that all negative NPV opportunities should still be rejected while all positive NPV opportunities remain eligible for further consideration (rather than automatically being accepted).

1. Profit after tax, also known as Earnings.

2. More generally, profit calculated after taking account of related expenses.

Sometimes referred to informally as the bottom line because of its position at (or near) the bottom line of an Income statement.

The alternative term net income may refer to either of the definitions of Net profit in 1. and 2. above.

An estimate of what stock or other assets could reasonably be expected to be sold for after deducting selling expenses and any costs of completing the item.

Funds transfer.
The settlement of a number of obligations or transfers between or among counterparties on a net basis.

A funds transfer system in which settlement operations are completed on a bilateral or multilateral net basis.

A condition in which an investor has more short positions than long positions in a given asset, market, portfolio or trading strategy.
Investors who are net short will benefit when the price of the underlying asset decreases.

(NWC). The amount by which current assets exceed current liabilities.

Loan documentation.
Broadly, Net worth is the value of equity, based on book values, which a borrower covenants to maintain at a minimum absolute or relative level (for the protection of the position of the lender).

The definition of Net worth for covenant compliance purposes will often be a point of negotiation between the lender and the borrower. For example, Tangible net worth excludes intangible fixed assets from the total figure.

An agreed offsetting of positions or obligations by trading partners or participants. The netting reduces a large number of individual positions or obligations to a smaller number of obligations or positions.

Netting may take several forms which have varying degrees of legal enforceability in the event of default of one of the parties.

Netting by novation agreements allow for individual forward-value contractual commitments, such as foreign exchange contracts, to be discharged upon confirmation and replaced by new obligations, all of which form part of a single agreement.

Amounts due under a discharged contract will be added to running balances due between the parties, in each currency and at each future value date.

A network bank has a significant presence across one or more regions of the world and extensive branch networks in several key countries other than its own domestic market.

(NYSE). Stock exchange based in New York City, considered the largest equities-based exchange in the world based on total market capitalisation of its listed securities.

Merged with Euronext to bring together marketplaces in Europe and the US.

Newer version of CHAPS (Clearing House Automated Payment System).

National Insurance Contributions.

A stock market index for the Tokyo Stock Exchange.

In relation to a rights issue, Nil paid shares are new shares which have not yet been paid for.

The usually assumed or expected situation in transparent financial markets, where pricing discrepancies between related markets have been eliminated.
So there are no remaining arbitrage opportunities at current market prices.

Many price and value calculations are based on ‘no arbitrage’ assumptions.

'There is no such thing as a free lunch.' This statement implies that there is not normally any opportunity to earn risk-free profits in financial markets.

No arbitrage conditions.

A term which has not been restated to exclude the effects of inflation. Terms are stated at the prices prevailing at the time of measurement.
This is the most commonly used basis of measuring and quoting financial information.

The rate of return per annum named or quoted in a market, under the quoting convention for the given market.
Market quotations are usually given per annum, and for this reason the term nominal rate is often used interchangeably with nominal annual rate.

For example, GBP overnight interest payable at the periodic rate of 0.014% per day, would conventionally be quoted on a nominal annual basis as:
365 x 0.014% = 5.11%.

Not to be confused with the effective annual rate.

Also known as market rate or nominal rate.

A bond paying a fixed nominal coupon - not linked to an index nor at a margin above a published reference rate.

Also known as fixed rate bonds.

The actual exchange rate.

Accounting.
This is a summary accounting record of the balances in each account split into the following categories: Income, Expense, Asset, Liability and Capital.

1. A rate of return or growth including inflation.
(Contrasted with the related real rate which strips out the component of return or growth arising from inflation.)

2. Nominal annual rate.

Par value.

A measure of the return on a fixed income security. It is equal to the coupon divided by the par value, expressed as a percentage.

Also known as the coupon rate.

Legal arrangement whereby assets or investments are held by a third party on behalf of the beneficial owner.

Finance from a lender for a commercial credit on terms which transfer the risk of default by the commercial debtor from the commercial seller to the lender or some third party guarantor or insurer; the lender has no recourse to the commercial seller.

In project finance, a financing which relies exclusively on the cashflows arising from the project and where the lender has no recourse to the company or companies undertaking the project.

UK Tax.
Where a company incurs net debits arising on non trading loans.

Tax.
Where funds are used to acquire items which are not part of the company’s trade.

Tax.
A chattel with an expected life in excess of 50 years.

An issue of securities where the holders cannot redeem the security before its stated maturity date.

(NDF). A foreign currency financial derivative contract. An NDF differs from an outright foreign currency forward contract in that there is no physical settlement of two currencies at maturity. Rather, a net cash settlement is made by one party to the other.

NDFs are commonly used to hedge foreign currency risks in emerging markets where local currencies are not freely convertible, or where there are restrictions on capital movements. An NDF market might then develop in an offshore financial centre, with contracts settled in major foreign currencies, such as the US dollar.

In the Capital Asset Pricing Model, the same as Market risk.

(NED). A member of a board of directors who does not form part of the executive management team.

A rating attributed to a security that is deemed speculative (less certain in respect of the preservation of the capital invested) in the opinion of a credit rating agency such as Fitch Ratings, Moody’s or Standard and Poor’s.

Accounting.
These include such items as cash, loans, debtors and creditors.

(NPL). A bank loan that has stopped earning interest and where the borrower is believed to be likely to default on the principal.

Debt which is not subject to a right of recourse.

Bank accounts held by individuals or legal entities that have no claim to residency in the country in which these bank accounts are held.

A commitment fee which is charged on the undrawn balance of a committed lending facility.

Net Operating Profit After Tax.

Net Operating Profit Less Adjusted Taxes.

The same as Net Operating Profit After Tax.

Pensions.
The pension contribution that would be required under a particular funding method, usually expressed as a percentage of pensionable salary, if the Target Fund had been exactly achieved (calculated before taking into account the amortisation of any surplus or deficit).

Also known as the Standard contribution rate.

Statistics.
Normal frequency distribution.

A normal frequency distribution is a continuous, symmetrical, bell-shaped distribution function.
Its mean, mode and median are all the same; and both the tails of the bell curve are infinitely long.

Because of its symmetry, a normal frequency distribution can be described fully by its mean and its standard deviation.

Commonly abbreviated to normal distribution.

Economics.
A product for which quantity demanded increases as income increases.

Economics.
The minimum acceptable profit the owners of a company are looking for.
So when the actual profit is equal to the Normal profit, then Supernormal profit = 0.

A statement which incorporates personal opinion.

Correspondent banking.
Nostro account.

1. An account held by a domestic bank with a (different) foreign bank to facilitate foreign currency transactions.

2. An account held by a bank with a foreign bank, specifically when the account balance stands in favour of the domestic bank. The term 'nostro' is derived from Latin, meaning 'in our favour'.
(In this context, the term 'vostro account' is used when the balance on the account stands in favour of the foreign bank.)

Credit rating.
The smallest amount of a change in a credit rating.

For example, an improvement in a credit rating from BBB to BBB+ represents a change of one notch.

1. Promissory note.

2. Accounting.
An additional detailed disclosure within a set of financial statements.

Accounting.
Notes accompany financial statements (IAS) or accounts and may be required under the financial reporting standards or sometimes under relevant company or securities law.
Notes may also be included voluntarily by the company (or other reporting entity) to help - or arguably to hinder - understanding.

The latter argument - that excessive volumes of disclosure can hinder understanding - is based on the idea that the most significant financial information may be obscured by presenting too much other information around it.

UK Tax - capital allowances.
A reduction in the Tax written down value (TWDV) of an industrial building where it is not in industrial use at the year end.

The principal amount (for example in an interest rate swap, forward rate agreement, cap or floor) or each of the amounts (in a cross currency interest rate swap) to which interest rates are applied in order to calculate periodic payment obligations.

Banking.
The technique used by banks for calculating interest on balances in a notional cash pool.
Excess funds in the accounts of a company or its subsidiaries are used to offset deficits in other company accounts for the purpose of determining interest earned or owed.

Notional pooling is also referred to as interest offset pooling.

Notional principal is the base amount on which the settlement of a derivative instrument - such as an Forward Rate Agreement (FRA) or a swap - is calculated.

The amount of notional principal would commonly be set equal to the principal amount of any underlying exposure being hedged.

Law.
A method of loan transfer, which transfers the rights and obligations of a lender by creating in law a new ('nova') contract between the parties, on the same terms as the original agreement except that the transferee has taken the place of the transferor.

Non-performing loan.

Net Present Value.

Statistical analysis.
The hypothesis that is being tested.

Net Working Capital.

New York Stock Exchange.

InterContinental Exchange.