Glossary of Finance Terms

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Natural Hedges

Situations in which aggregate risk can be reduced by derivatives transactions between two parties.

Net Cash Flow

The actual net cash, as opposed to accounting net income, that a firm generates during some specified period.

Net Float

The difference between our checkbook balance and the balance shown on the bank's books.

Net Present Value (NPV) Method

A method of ranking investment proposals using the NPV, which is equal to the present value of future net cash flows, discounted at the marginal cost of capital.

Net Present Value Profile

A graph showing the relationship between a project's NPV and the firm's cost of capital.

Net Working Capital

Current assets minus current liabilities.

Nominal (Quoted) Risk-Free Rate, kRF

The rate of interest on a security that is free of all risk: kRFis proxied by the T-bill rate or the T-bond rate. kRF includes an inflation premium.

Nominal (Quoted, or Stated) Interest Rate

The contracted, or quoted, or stated, interest rate.

Normal (Constant) Growth

Growth which is expected to continue into the foreseeable future at about the same rate as that of the economy as a whole; g is a constant.

Normal Profits/Rates of Return

Those profits and rates of return that are close to the average for all firms and are just sufficient to attract capital