Glossary of Terms

UK National Association of Pension Funds.

National Association of Securities Dealers Automated Quotations system.

(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.

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

Also known as the 'Napierian logarithm'.

Abbreviation for Net asset value.

Accounting. Abbreviation for 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.

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 a property cannot confer it on another except with the true owner's authority (i.e. as his agent). There are a also a small number of exceptions to this general principle.

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

See 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 liabilities.

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.

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 before offsetting any tax relief enjoyed on the interest expense.

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

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

(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.

In simple Net Present Value analysis the decision rule is that all positive NPV opportunities should be accepted, and all negative NPV opportunities should be rejected.

1. Profit after tax, also known as Earnings.
2. More generally, profit calculated after taking account of related expenses.

Net realisable value is 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.

(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.

An abbreviation of National Insurance Contributions.

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.

See 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.

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. Same as nominal annual rate.

Same as 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.

(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 U.S. dollar.

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

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

Debt which is not subject to a right of recourse.

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

Net Operating Profit After Tax.
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 T = corporation tax rate.

Net Operating Profit Less Adjusted Taxes.
The same as NOPAT.

Pensions. This is 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. See 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.

An account held by one bank with a foreign bank to facilitate foreign currency transactions.

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.

Also known as promissory note.

UK tax - capital allowances. A reduction in the TWDV of an industrial building where it is not in industrial use at the year end.

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 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.

Abbreviation for Net Present Value.

Statistical analysis. The hypothesis that is being tested.

Abbreviation for Net Working Capital.

New York Stock Exchange.