NAFTA
See North American Free Trade Agreement.

Naked call
Where the writer of a call option (the “seller”) does not own the underlying security (this is also known as an “uncovered” position). This is a bearish position because the writer expects the stock price to fall. By not holding the underlying security, the writer is essentially exposed to an unlimited loss.

Naked put
Where the writer of a put option (the “seller”) does not own the corresponding short position in the underlying security (this is also known as an ”uncovered” position). This is a bullish position because the writer expects the stock price to rise. By not holding the underlying security, the writer is essentially exposed to a loss equal to the value of the options’ strike price.

Narrow market
Market with little trading activity. Because of the low volume of trading it displays high volatility, high spreads and low liquidity.

NASDAQ
National Association of Securities Dealers Automated Quotations System. US stock exchange that has a particular emphasis on developing and technology companies. The NASDAQ Composite Index is an index covering all stocks in the NASDAQ market.

National Employment Savings
Trust National pension scheme set up to help people on low to moderate incomes with no access to proper employment pension schemes save for an income in retirement. (See also Personal Accounts Delivery Authority.)

National income (NI)
Annual income earned by a country for its production of goods and services.

NAV
See net asset value.

Negative convexity
When a bond’s price rises less for a downward move in yield than its price declines for an equal upward move in yield.

Negative yield curve
Described as being negative (or inverted) when the yields on short-term bonds are higher than the yields on long-term bonds. This can imply that interest rates are expected to decline, or that there is excess demand for long-term bonds.

NEST
See National Employment Savings Trust.

Net asset value (NAV)
Total market value of assets minus its total liabilities. The unit price of an open-ended pooled fund is calculated with reference to the NAV of the fund (the NAV of a unit being the NAV of the fund divided by the total number of units in the fund). The market price of shares in a closed-end pooled fund may stand at either a discount or premium to NAV. (See also closed-end fund.)

Net asset value (real estate)
Gross asset value less the value of debt (leverage) in a property fund. (See also gross asset value [real estate].)

Net domestic product
Gross domestic product after deductions for the depreciation of a country’s
capital goods.

Net income
Company’s gross sales revenues minus taxes, interest, depreciation and
other expenses.

Net operating income (NOI)
Gross sales revenue minus operating expenses. There is no deduction for taxes or interest.

Net position
Where a fund can short sell securities, the net position refers to the level of a fund’s exposure to market risk. For a long/short equity fund, if a fund is 100% long and 30% short, then the net position is 70% (also known as net exposure). Traditional investment funds are 100% long.

Net present value (NPV) N
Present value of expected future cash flows minus any initial and ongoing investment costs. Often used in capital budgeting to determine whether or not to make an investment (if negative, the investment should not be made).

New York Stock Exchange (NYSE)
Largest stock exchange in the US.

Nikkei
Tokyo Stock Exchange’s headline index. It covers only a relatively small number of stocks (225).
nil cost (specific to derivatives) Simultaneous purchase and sale of options on the same underlying security for the same period with the same premium but at different strike prices.

No-load
Without any sales charge. (See also front-end load.)

NOI
See net operating income.

Nominal interest rate
Interest rate in monetary terms, unadjusted for inflation. (See also real interest rate.)

Nominal rate of return
Rate of return expressed only in monetary terms — that is, not adjusted for inflation.

Nominal spread
Difference between the redemption yield on a specific bond, and the redemption yield of a gilt of the same maturity. Not considered a good measure of differential pricing, as it does not take into account how changes in the shape of the overall yield curve may impact on relative market values. (See also option-adjusted spread, Z-spread.)

Nominal value
Of a bond, its par or face value on which interest and capital repayments are based. Of an equity, the book value at which the shares were issued.

Nominee
Person or company that is registered as the owner of a security. The assets of segregated pension plans are usually held in nominee accounts which, for convenience, are registered in the name of the investment management company. However, the pension plan remains the beneficial owner of the securities.

Non-diversifiable risk
Risk inherent in a particular market. Owning a greater number of securities from that market will not reduce (diversify away) this risk. Also known as systematic risk.

Non-interest bearing note
Type of zero coupon bond.

Non-private customer
Category of investor (as required by the FSA) given limited protections under the conduct of business rule. (See also private customer.)

Non-rated bond
Bond which has not been rated by a large rating agency (e.g. Moody’s or S&P) and therefore carries the risk of potentially being poor quality.

Non-systematic risk
Risk attributable to an individual company, pertaining to factors not associated with the sector or broader market. The impact of non-systematic risk factors can be reduced by the diversification of a portfolio.

Normal distribution
The most common type of distribution for a variable whereby the probability distribution plots all of its values in a symmetrical fashion and most of the results are situated around the probability’s mean. Often associated with the term bell curve, this terminology is an extension of the fact that the graph used to depict a normal distribution consists of a bell-shaped line.

Normal yield curve
Described as being normal when the yields on short-term debt are lower than the yields on long-term debt. Also known as a positive yield curve.

North American Free Trade Agreement (NAFTA)
Agreement promoting free trade between the United States, Canada, and Mexico.

Note
Short-term debt instrument, usually with a maturity of five years or less.

Notional amount
Notional amount for a derivative contract is the quantity/value of the underlying securities to which the contract applies.

Novation
Substitution of a new entity for one of the parties to an agreement (e.g. a swap agreement), with the consent of each of the parties involved.

NPV
See net present value.

NYSE
See New York Stock Exchange.

Nearby (Delivery) Month
The futures contract month closest to expiration. Also referred to as spot month.

Negative Yield Curve
See Yield Curve.

Notice Day
According to exchange rules, the second day of the three-day delivery process when the clearing corporation matches the buyer with the oldest reported long position to the delivering seller and notifies both parties. See First Notice Day.