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Dictionary of Financial Terms |
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Click on any letter below to browse our list of financial terms or enter key words below to focus your search.
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Naked option When you write, or sell, a call option but don't own
the underlying security, the option you're writing is described as
naked. You can make a profit if the underlying investment performs as
you expect, and no one exercises the option, because you collect a
premium when you sell it.
The risk you run, however, is that someone
will exercise the option, and you'll have to buy the investment at
market price in order to meet your obligation to sell. If that price
has moved in the opposite direction from the one you expected-gone up
instead of down-buying the investment could cost you a substantial
amount of money, and you'd have an overall
loss. |
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Nasdaq Composite Index This index tracks the prices of all of the
securities traded on the Nasdaq Stock Market (Nasdaq), which makes it
a broader measure of market activity than the Dow Jones Industrial
Average (DJIA) or Standard & Poor's 500-stock Index (S&P 500). The
index is market capitalization-weighted, which means that companies
whose market values are higher exert greater influence on the
movement of the index.
Market value, or capitalization, is computed
by multiplying the most recent sales price times the total number of
outstanding shares. So, for example, if a stock with 1 million
outstanding shares increased $3 in value, it would have a greater
impact on the index than a stock that also increased $3 in value but
had only 500,000 outstanding shares. The index is updated throughout
the trading day. |
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Nasdaq National Market (Nasdaq) The Nasdaq National Market is part
of the electronic Nasdaq Stock Market administered by the National
Association of Securities Dealers (NASD). Stocks traded on this
market must meet specific listing criteria for market capitalization
and trading activity.
One of the most important and active markets
in the nation, the Nasdaq specializes in emerging companies, and is
especially strong in technology and telecommunications. With the
soaring value of many Internet stocks, however, many of which are
traded on the Nasdaq, a growing number of Nasdaq companies have large
market capitalizations. The Nasdaq Small-Cap Market lists smaller,
emerging companies. |
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National Association of Securities Dealers (NASD) NASD, a
nonprofit, self-regulating association supervised by the Securities
and Exchange Commission (SEC), sets standards and establishes rules
for the way that its members, including brokerage firms active in the
over-the-counter (OTC) market and investment banks, operate.
NASD
also has the authority to discipline members who violate those
standards. Among NASD's other responsibilities are reviewing and
approving sales and marketing literature that its members use to
promote their products. The goal is to protect investors from
misleading information on the risks and rewards of
investing. |
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National bank All banks in the US are chartered by either a state
government or the federal government. Federally chartered banks, or
national banks, are overseen by the Comptroller of the Currency of
the US Treasury. All national banks are members of the Federal
Reserve System and are insured by the Federal Deposit Insurance
Corporation (FDIC).
The US's dual banking system of federally- and
state-chartered banks was established by the National Banking Act of
1863, which created the new system of federally chartered banks in an
attempt to put state-chartered banks out of business. State banks
have survived, however, and the two banking systems
co-exist. |
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National debt The total value of all outstanding Treasury bills, notes, and bonds that the federal government owes investors is
referred to as the national debt. Some of this debt is held by the
government itself, in accounts such as the Social Security, Medicare,
Unemployment Insurance, and Highway, Airport and Airway Trust Funds.
The rest is held by individual and institutional investors, both domestic and foreign, or by foreign governments.
The national debt
is not the same as the federal budget deficit, which is any federal
spending that exceeds federal income in a fiscal
year. |
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National Quotation Bureau Every trading day, this subscription
service publishes bid and ask prices for over-the-counter (OTC)
stocks and bonds that don't meet the listing requirements of the
Nasdaq National Market (Nasdaq) or the Nasdaq Small-Cap Market.
The
Bureau gathers its information from market makers in these securities
and prints the stock data on distinctively colored paper: pink sheets
for stocks and yellow sheets for bonds. The same information, updated
continuously throughout the trading day, is available electronically
on the NQB website. |
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Negative yield curve When the current yields of short- and long-term US Treasury securities are plotted to create a graph, the result is a negative, or inverted, yield curve one that's higher on the left when the yield on short-term bills is higher than the yield on long-term bonds. A positive yield curve one that's higher on the right results when the yield on long-term bonds is higher than the yield on the short-term bills.
In most periods, the yield curve is positive because investors demand more for tying up their money for a longer period. But there are times, such as when interest rates seem to be on the upswing, that the pattern is reversed and the yield curve is negative.
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Net asset value (NAV) The NAV is the dollar value of one share of
a mutual fund. It is calculated by totaling the value of all the
fund's holdings and dividing by the number of outstanding shares.
That means the NAV changes regularly, though day-to-day changes are
usually small.
With no-load funds, the NAV and the offering price,
or what you pay to buy a share, are the same. With front-load funds,
the offering price is the sum of the NAV and the sales charge per
share. The NAV is also the price per share the fund pays when you
sell back, or redeem, your shares.
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NET ASSET VALUE (NAV)
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Value of fund holdings
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= Net asset value |
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Outstanding shares
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Net change Each trading day, the difference between the closing
price of a stock, bond, or mutual fund, or the last price of a
commodity contract, and the closing price on the previous day is
reported as net change, sometimes simply as change. When a stock has
gained in value, it has a positive net change-expressed with a plus
sign and a number, such as +1/2, meaning that the price was up 50
cents from the previous trading day. On days that a stock falls, it
has a negative change-expressed with a minus sign and a number, such
as -1, meaning that the price was a dollar lower. You can find net
change information in the financial pages of newspapers and on
financial websites. |
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Net worth A corporation's net worth, also known as stockholder's
equity, is figured by adding its retained earnings, which is the
amount left after dividends are paid, to the money in its capital
accounts, and then subtracting all of its short- and long-term debt.
Net worth figures are included in the corporation's annual
report.
To figure your own net worth, you first add up the value of
the things, or assets, you own (securities, personal property, real
estate) and then subtract your liabilities, or what you owe in loans
and other obligations. If your assets are larger than your
liabilities, you have a positive net worth. But if your liabilities
outweigh your assets, you have a negative net worth.
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NET WORTH
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Value of assets |
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Liabilities |
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=
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Net worth |
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No-load mutual fund You can buy a no-load mutual fund directly
from the investment company that sponsors the fund. You pay no sales
charge, or load, on the fund when you buy or sell shares (though some
no-load funds charge a redemption fee if you sell before a certain
time has elapsed in order to limit short-term turnover). However,
some companies charge an annual fee, called a 12b-1 fee, to offset
their marketing costs. This fee is figured as a percentage of the
value of your holdings in the fund.
You may also be able to buy
no-load funds through a mutual fund network, sometimes known as a
mutual fund supermarket, typically sponsored by a discount brokerage
firm. If you have an account with the firm, you can choose among
no-load funds sponsored by a number of different investment
companies.
While load funds and no-load funds with similar
investments tend to produce almost equivalent total returns over the
long term-say 10 years or more-it can take that long to offset the
higher cost of buying load funds. |
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Nonbank banks Nonbank banks, also called limited-service banks,
can offer some but not all of the services of a traditional
commercial bank. They are typically owned by companies, including
banking holding companies, insurance companies, brokerage firms, and
retail stores, that want to provide financial services without being
limited by the regulations that govern traditional banks, such as
restrictions on interstate and branch banking.
Many of the nonbanks
themselves, however, are insured by the Federal Deposit Insurance
Corporation (FDIC) and are subject to the same reserve requirements
and examinations as regular banks. Opponents of nonbanks believe they
drain financial resources away from small towns to big cities in
other states and undermine the nation's decentralized banking
system.
In a more general way, the term nonbank bank is also
sometimes applied to online banks, which don't operate from
brick-and-mortar branches. |
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Noncallable When a bond is noncallable, the issuer cannot redeem
it before the stated maturity date. Some bonds have call protection
for their full term, and others for a fixed period-often 10
years.
The appeal of a noncallable bond is that the issuer will pay
interest at the stated coupon rate for the bond's full term. That
means you won't unexpectedly find yourself with a lump-sum payment
when the bond is called and suddenly have to find another way to
invest your principal. |
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Noncompetitive bid Investors who can't or don't wish to meet the
minimum purchase requirements of $500,000 for competitive bidding on
Treasury bills, notes, or bonds can enter a noncompetitive bid, also
known as a noncompetitive tender.
You can invest as little as $1,000
or as much as $1 million through Treasury Direct, a system offered
through the Federal Reserve banks that allows you to buy government
securities without going through a bank or a brokerage firm. The
Treasury sells T-bills, for example, to all buyers whose bids arrive
by the weekly deadline, for a price equal to the average of all
competitive bids for that week's issue. |
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Copyright 2002 Lightbulb Press, Inc. All Rights Reserved
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