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when di is above di then the trend is down or at least downward movement is outpacing upward movement recently if di is above di then the trend is up or upward price movement is outpacing downward price movement recently | because these two lines can indicate trend direction crossovers are sometimes used as trade signals the di crossing above the di signals a down move price and is therefore a sell or short trade signal a buy signal occurs if the di crosses above the di these indicators are part of the average directional index adx system the addition of the adx line which is a smoothed average of the difference between the di and di helps traders see how strong the current trend is typically readings above 20 on the adx and especially above 25 show a strong trend is present traders can utilize all the elements in the adx system to help make better trading decisions for example the di and di lines show the trend direction and crossovers adx shows trend strength so a trader may decide to only take long trades when adx is above 20 and the di is above or crossing the di the differences between the negative directional indicator and a moving averagea moving average takes the average price of an asset over a set time period the negative directional indicator di is only concerned with the prior low relative to the current low when applicable because of this the di is not an average even though it may sometimes appear to track the price when the price is falling due to the different calculations of the two indicators the di and the moving average will provide the trader with different information limitations of using the negative directional indicatorthe di provides limited information on its own it is much more useful when combined with the di line by looking at the relationship between the two lines traders can better assess whether upward or downward price movement is stronger because traders often look at the relationship between these two lines and crossovers it should be noted that di and di lines may intersect frequently this can result in whipsaws whipsaws are when the lines cross back and forth triggering trades but the price of the asset doesn t follow through and the trader loses money savvy investors use other forms of technical and fundamental analysis to confirm what the di lines are suggesting | |
what is negative equity | negative equity occurs when the value of real estate property falls below the outstanding balance on the mortgage used to purchase that property negative equity is calculated simply by taking the current market value of the property and subtracting the amount remaining on the mortgage | |
how negative equity works | to understand negative equity we must first understand positive equity or rather as it is commonly referred to home equity home equity is the value of a homeowner s interest in their home it is the real property s current market value less any liens or encumbrances that are attached to that property this value fluctuates over time as payments are made on the mortgage and market forces play on the current value of that property if some or all of a home is purchased by means of a mortgage the lending institution has an interest in the home until the loan obligation has been met home equity is the portion of a home s current value that the owner possesses free and clear home equity can be accumulated by either a down payment made during the initial purchase of the property or with mortgage payments as a contracted portion of that payment will be assigned to bring down the outstanding principal still owed owners can benefit from property value appreciation as it will cause their equity value to increase | |
when the opposite happens when current market value of a home falls bellows the amount the property owner owes on their mortgage that owner is then classified ashaving negative equity in the home the sale of a home with negative equity becomes a debt to the seller as they would be liable to their lending institution for the difference between the attached mortgage and the sale of the home 1 | negative equity s economic implicationsnegative equity can occur when a homeowner purchases a house using amortgage before either a collapse of a housing bubble a recession or adepression anything that causes real estate values to fall for instance say a buyer financed the purchase a 400 000 home with a mortgage of 350 000 if the market value of that home the next year tumbles to 275 000 the owner has negative equity in the home because the mortgage attached to the property is 75 000 greater than what it would sell for in the current market 2in real estate jargon if the outstanding dollar amount remaining on mortgage is larger than what the home is worth the property the mortgage and the homeowner are said to be underwater 3underwater mortgages were a common problem among homeowners around the height of the financial crisis of 2007 2008 which among other things involved a substantial deflation in housing prices as the subsequent onset of the great recession proved the widespread epidemic of negative equity across the housing market can have far reaching implications for the economy as a whole homeowners with negative equity found it more difficult to actively pursue work in other areas or states due to the potential losses incurred from the sale of their homes special considerationsnegative equity is not to be confused with mortgage equity withdrawal mew is the removal of equity from the value of a home through the use of a loan against the market value of the property a mortgage equity withdrawal reduces the real value of a property by the number of new liabilities against it but it doesn t mean the owner has gone into the red equity wise | |
what is negative feedback | negative feedback can be defined as a system where outputs mute or moderate the initial inputs with a dampening effect in the context of contrarian investment an investor using a negative feedback strategy would buy stocks when prices decline and sell stocks when prices rise which is the opposite of what most people do negative feedback by this definition helps make markets less volatile by pushing systems towards equilibrium its opposite is positive feedback in which a good outcome is perpetuated or when herd mentality pushes elevated prices ever higher negative feedback is also used colloquially although it is technically incorrect as a system where outputs are routed back as inputs to exacerbate some negative outcome thereby worsening a bad situation such as an economic panic or a deflationary spiral this use is technically incorrect as it is an example of a positive feedback loop that makes a negative outcome worse still many people incorrectly use the term negative feedback loop in this context | |
how negative feedback works | many people believe financial markets can exhibit feedback loop behaviors originally developed as a theory to explain economics principles the notion of feedback loops is now commonplace in other areas of finance including behavioral finance and capital markets theory with negative feedback events like stock price drops bearish news headlines social media rumors and shocks produce reactions that serve to stabilize or reverse that initial result dip buyers or profit taking sellers for instance can help minimize the severity of a selloff or rally this differs from positive feedback where input from a relatively minor initial event can snowball into an ever compounding downward spiral financial panics and market crashes are examples of positive feedback in markets that head in the negative direction bubbles are positive feedback loops that instead send prices higher warren buffett is often quoted as saying the markets are frequently nonsensical 1 this is in contrast to proponents of the efficient market hypothesis emh who would say that markets are always efficient consequently troubled stocks may be priced lower than a rational investor would anticipate simply because some investors are more panicked or pessimistic than most when this cycle persists the price can be driven below rational fundamental levels this can happen because of a negative feedback loop special considerationsfeedback within financial markets takes on significantly greater importance during periods of distress given humans propensity to overreact to greed and fear markets have a tendency to get erratic during moments of uncertainty the panic during sharp market corrections illustrates this point clearly such feedback even for benign issues becomes a negative self fulfilling cycle or loop that feeds on itself investors seeing others panic in turn panic themselves creating an environment that is difficult to reverse however many markets are restored to some sort of equilibrium through negative feedback arbitrage value investors and spread traders all seek to profit from mispricings generated by positive feedback loops by taking opposing positions to the emotional response one way investors can protect themselves from dangerous feedback loops is by diversifying their investments the negative self fulfilling cycles exhibited during the financial crisis of 2008 for example were very costly for millions of americans | |
what is negative and positive feedback | many believe financial markets exhibit feedback loop behavior positive feedback amplifies change meaning as share prices increase more people buy the stock pushing prices up further negative feedback minimizes change meaning investors buy stocks when prices decline and sell stocks when prices rise | |
what is an example of negative feedback | one example of a negative feedback loop that occurs constantly is the body s method of maintaining its internal temperature the body senses an internal change such as a spike in temperature and activates mechanisms that reverse or negate that change the activation of the sweat glands | |
what is meant by negative feedback loop | in the context of financial markets a negative feedback loop refers to behavior that either compounds a bad outcome or minimizes change rather than amplifying it in the latter case investors buy stocks when prices decline and sell stocks when prices rise this however is actually an example of positive feedback although many people in practice still refer to this as a negative feedback loop | |
what is a negative gap | a negative gap is a situation where a financial institution s interest sensitive liabilities exceed its interest sensitive assets a negative gap is not necessarily a bad thing because if interest rates decline the entity s liabilities are repriced at lower interest rates in this scenario income would increase however if interest rates increase liabilities would be repriced at higher interest rates and income would decrease the opposite of a negative gap is a positive gap where an entity s interest sensitive assets exceed its interest sensitive liabilities the terms of negative and positive gaps which analyze interest rate gaps are also known as duration gap understanding a negative gapnegative gap is related to gap analysis which can help determine a financial institution s interest rate risk as it relates to repricing i e the change in interest rates when an interest sensitive investment matures the size of an entity s gap indicates how much of an impact interest rate changes will have on a bank s net interest income net interest income is the difference between an entity s revenue which it generates from its assets including personal and commercial loans mortgages and securities and its expenses e g interest paid out on deposits negative gap and asset liability managementa negative gap is not necessarily either good or bad but it is a measure of how much a bank is exposed to interest rate risk understanding this metric is a component of asset liability management which banks must consider in their operations gap analysis as a method of asset liability management can be helpful in assessing liquidity risk in general the concept of asset liability management focuses on the timing of cash flows it looks at when cash inflows are received versus when payments on liabilities are due and when the liabilities present a risk it aims to ensure that the timing of liability payments will always be covered by cash inflows from the assets asset liability management is also concerned with the availability of assets to pay the liabilities and when the assets or earnings may be converted into cash this process can be applied to a range of categories of balance sheet assets | |
what is negative gearing | negative gearing is a practice common in property investing it is a form of financial leverage that describes the purchase of an income producing asset such as a rental property but when the asset will not produce enough income to cover the cost of the asset for example when the rental income is insufficient to cover the loan payments maintenance interest or depreciation for the asset in the short term ideally the asset will eventually produce enough money to cover those costs the reason a property buyer would employ negative gearing is that the short term losses can be beneficial to the owner s tax bill in certain instances understanding negative gearinga negatively geared asset is one that does not provide sufficient income to cover its cost it results in a loss for the asset owner the benefit to the buyer or investor is that depending on the investor s home country the shortfall between income earned and interest due can be deducted from current income taxes countries that allow this tax deduction include australia japan and new zealand 1 other countries such as canada france germany sweden and the united states allow the deduction but with restrictions 2 investing in such a way might make sense in instances where large capital gains are expected at the time of sale which will recoup intermittent losses profiting from negative gearingnegative gearing only becomes a profitable venture when the property is eventually sold via capital appreciation at the time of sale a prerequisite is that property values must be rising not falling or holding steady if property values are falling or holding steady the owner might not be able to sell the asset at a high enough price to make up for the losses while the asset was producing insufficient income to cover expenses many investors who speculate this way will purposely seek out negative gearing for the tax deductions in the hope that they will make a profit when the property is sold for capital gains special considerationsinvestors considering this type of arrangement need to have the financial stability to fund the shortfall out of pocket until the property is sold and the full profit can be reached also of utmost importance is that the interest rate is locked in from the beginning or if the borrower s interest is calculated on a floating index that prevailing rates remain low a criticism of negative gearing is that it can distort the housing market by reducing housing supply particularly of rental properties perhaps push up rental prices and encourage over investment in real estate | |
what is negative goodwill | in business negative goodwill ngw is a term that refers to the bargain purchase amount of money paid when a company acquires another company or its assets for significantly less their fair market values negative goodwill also know as badwill generally indicates that the selling party is distressed or has declared bankruptcy and faces no other option but to unload its assets for a fraction of their worth consequently negative goodwill nearly always favors the buyer negative goodwill is the opposite of goodwill where one company pays a premium for another company s assets investopedia jake shiunderstanding negative goodwillnegative goodwill along with goodwill are accounting concepts created to acknowledge the challenge of quantifying the value of intangible assets such as a company s reputation patents customer base and licenses these intangible assets differ from tangible items such as equipment or inventory in most acquisition cases transactions involve goodwill where buyers pay a greater sum than the value of the selling company s tangible assets but in rarer cases negative goodwill occurs where the value of the intangible assets must be recorded as a gain on the buyer s income statement this goodwill negative goodwill reporting mandate falls under generally accepted accounting standards gaap specifically under the financial accounting standards board fasb statement no 141 regarding business combinations if the value of all the acquired company s assets exceeds the purchase price of the company a bargain purchase is said to have occurred fasb defines a bargain purchase as a business combination where the acquisition date amounts of identifiable net assets acquired excluding goodwill exceed the sum of the value of consideration transferred 1 in the event of a bargain purchase the purchaser is required under gaap to recognize a gain for financial accounting purposes the effect of this gain is an immediate increase in net income negative goodwill is especially important to track because it gives investors a more holistic snapshot of a company s value an acquisition that involves negative goodwill increases reported assets income and shareholder equity potentially distorting performance metrics like return on assets roa and return on equity roe which would appear lower as a result examples of negative goodwillas a fictitious example of negative goodwill let s assume company abc buys the assets of company xyz for 40 million but those assets are actually worth 70 million this deal only occurs because xyz is in dire need of cash and abc is the only entity willing to pay that amount in this case abc must record the 30 million difference between the purchase price and the fair market as negative goodwill on its income statement consider this real life example of negative goodwill in 2009 british retail and commercial bank lloyds banking group formerly lloyds tsb acquired banking and insurance company hbos plc for a purchase price that was substantially lower than the value of hbos plc s net assets consequently this transaction produced negative goodwill of approximately gbp 11 billion which lloyds banking group added to its net income that year 2 | |
what is negative growth | negative growth is a contraction in business sales or earnings it is also used to refer to a contraction in a country s economy which is reflected in a decrease in its gross domestic product gdp during any quarter of a given year negative growth is typically expressed as a negative percentage rate understanding negative growthgrowth is one of the main ways that analysts describe a company s performance positive growth means the company is improving and is likely to show higher earnings which should increase the share price the opposite of positive growth is negative growth and this describes the performance of a company experiencing a decline in sales and earnings economists also use growth to describe the state and performance of the economy by measuring gdp gdp takes into account a multitude of factors to determine how the overall economy is doing these factors include private consumption gross investment government spending and net exports when an economy is growing it is a sign of prosperity and expansion positive economic growth means an increase in money supply economic output and productivity an economy with negative growth rates has declining wage growth and an overall contraction of the money supply economists view negative growth as a harbinger of a recession or depression negative growth and the economyrecurring periods of negative growth are one of the most commonly used measures to determine whether an economy is experiencing a recession or depression the recession of 2008 or the great recession is an example of a period of economic growth measured as more than two years of negative growth the great recession began in 2008 and continued into 2010 the gdp growth rate in 2008 was 0 1 and in 2009 it was 2 5 the gdp growth rate bounced back to positive in 2010 with a rate of 2 6 although the announcement of negative growth strikes fear into investors and consumers it is just one of many factors that contribute to a recession or depression negative growth rates and economic contraction are also marked by a decrease in real income higher unemployment lower levels of industrial production and a decline in wholesale or retail sales however the current state of the economy at times can be misleading to when negative growth is occurring or not for example in situations where negative growth occurs the real value of wages is increasing and consumers may consider the economy to be stable or improving similarly when an economy experiences both positive gdp growth and high rates of inflation people may feel that the economy is on a decline | |
what is negative income tax | negative income tax nit is an alternative to welfare suggested by among other proponents economist milton friedman in his 1962 book capitalism and freedom 1 nit proponents assert that every american without income above the threshold for tax liability should have a basic income guarantee and that nit is a means to subsidize the needy at less cost than the welfare system negative income tax explainedto get a negative income tax subsidy the needy would along with other taxpayers simply file income tax returns the irs computerized system could then quickly and objectively identify taxpayers with income below the threshold as eligible for help nit proponents envisioned negative income tax nit as a mirror image of the existing tax system where tax liabilities of above the threshold taxpayers vary positively with income according to a tax rate schedule and tax benefits of below the threshold taxpayers vary inversely with income according to a negative tax rate or benefit reduction schedule taxpayers with income above the threshold would pay taxes in a cash amount equal to the difference positive taxes and taxpayers with income below the threshold would receive nit refundable credits in a cash amount equal to the difference negative taxes nit opponents applying labor supply economic theories worried that negative income tax nit s promise of a threshold income guarantee would cause the working poor to work less or quit entirely to substitute in leisure activities since wages reduce but may not exceed the guarantee particularly after payroll and state and local income taxes are taken out if too many of the working poor succumbed to this income effect and this substitution effect the swelling number of needy with income below the threshold and eligible for nit refundable credits would make total negative income tax nit costs untenable | |
what is a negative interest rate | the term negative interest rate refers to situations in which interest is paid to borrowers rather than to lenders when interest rates are negative central banks typically charge commercial banks on their reserves as a form of non traditional expansionary monetary policy rather than crediting them this is a very unusual scenario that generally occurs during a deep economic recession when monetary efforts and market forces have already pushed interest rates to their nominal zero bound this tool is meant to encourage lending spending and investment rather than hoarding cash which will lose value to negative deposit rates understanding negative interest ratesan interest rate is effectively the cost of borrowing this means that lenders charge borrowers interest when they take on any type of debt such as a loan or mortgage although it may seem strange there are instances where lenders may end up paying borrowers when they take out a loan this is called a negative interest rate environment negative rates are normally set by central banks and other regulatory bodies they do so during deflationary periods when consumers hold too much money instead of spending as they wait for a turnaround in the economy consumers may expect their money to be worth more tomorrow than today during these periods when this happens the economy can experience a sharp decline in demand causing prices to plummet even lower | |
when strong signs of deflation are present simply cutting the central bank s interest rate to zero may not be sufficient enough to stimulate growth in both credit and lending this means that a central bank must loosen its monetary policy and turn to negative interest rates | therefore a negative interest rate environment occurs when the nominal interest rate drops below 0 for a specific economic zone this effectively means that banks and other financial firms have to pay to keep their excess reserves stored at the central bank rather than receiving positive interest income in a negative interest rate environment an entire economic zone can be impacted as such storing cash incurs a fee rather than earning interest which means that consumers and banks have to pay interest in order to deposit money into an account special considerationswhile real interest rates can be effectively negative if inflation exceeds the nominal interest rate the nominal interest rate is theoretically bounded by zero this means that negative interest rates are often the result of a desperate and critical effort to boost economic growth through financial means the zero bound refers to the lowest level that interest rates can fall to some forms of logic dictate that zero would be the lowest level however there are instances where negative rates have been implemented during normal times for instance the target interest rate in switzerland was negative until september 2022 1 japan adopted a similar policy until march 2024 2with negative interest rates commercial banks are charged interest to keep cash with a nation s central bank rather than receiving interest this dynamic should theoretically trickle down to consumers and businesses but in reality commercial banks are generally reluctant to pass negative rates onto their customers consequences of negative ratesa negative interest rate policy nirp is an unusual monetary policy tool nominal target interest rates are set with a negative value which is below the theoretical lower bound of 0 | |
when people hoard money rather than spend or invest it aggregate demand collapses this leads to prices falling even further a slowdown or halt in real production and output and an increase in unemployment | a loose or expansionary monetary policy is usually employed to deal with such economic stagnation however if deflationary forces are strong enough simply cutting the central bank s interest rate to zero may not be sufficient to stimulate borrowing and lending but it s still not clear if a nirp is effective in achieving the goal in the countries that established it and in the way it was intended it s also unclear whether or not negative rates have successfully spread beyond excess cash reserves in the banking system to other parts of the economy individual depositors aren t charged negative interest rates on their bank accounts example of negative interest ratescentral banks in europe scandinavia and japan have implemented a negative interest rate policy on excess bank reserves in the financial system 3 this unorthodox monetary policy tool is designed to spur economic growth through spending and investment depositors would be incentivized to spend cash rather than store it at the bank and incur a guaranteed loss | |
how can interest rates turn negative | interest rates tell you how valuable money is today compared to the same amount of money in the future positive interest rates imply that there is a time value of money where money today is worth more than money tomorrow forces like inflation economic growth and investment spending all contribute to this outlook a negative interest rate by contrast implies that your money will be worth more not less in the future | |
what do negative interest rates mean for people | most instances of negative interest rates only apply to bank reserves held by central banks however we can ponder the consequences of more widespread negative rates first savers would have to pay interest instead of receiving it by the same token borrowers would be paid to do so instead of paying their lender therefore it would incentivize many to borrow more and larger sums of money and to forgo saving in favor of consumption or investment if they did save they would save their cash in a safe or under the mattress rather than pay interest to a bank for depositing it note that interest rates in the real world are set by the supply and demand for loans despite central banks setting a target as a result the demand for money in use would grow and quickly restore a positive interest rate | |
where do negative interest rates exist | some central banks have set a negative interest rate policy nirp in order to stimulate economic growth in the financial sector or else to protect the value of a local currency against exchange rate increases due to large inflows of foreign investment countries including japan switzerland sweden and even the ecb eurozone have adopted nirps at various points over the past two decades 4 | |
why would central banks adopt nirps to stimulate the economy | monetary policymakers are often afraid of falling into a deflationary spiral in harsh economic times such as deep economic recessions or depressions people and businesses tend to hold on to their cash while they wait for the economy to improve this behavior however can weaken the economy further as a lack of spending causes further job losses lower profits and price drops all of which reinforce people s fears giving them even more incentive to hoard as spending slows even more prices drop again creating another incentive for people to wait as prices fall further and so on when central banks have already lowered interest rates to zero the nirp is a way to incentivize corporate borrowing and investment and discourage hoarding of cash the bottom linenegative interest rates are a monetary policy in which interest is paid from lenders to borrowers rather than from borrowers to lenders this atypical scenario plays out during deep recessions or periods of deflation when monetary efforts and market forces have already pushed interest rates close to or zero such a tool aims to encourage lending spending and investment rather than hoarding some countries like switzerland and japan have until recently implemented negative interest rates | |
what is a negative interest rate | the term negative interest rate refers to situations in which interest is paid to borrowers rather than to lenders when interest rates are negative central banks typically charge commercial banks on their reserves as a form of non traditional expansionary monetary policy rather than crediting them this is a very unusual scenario that generally occurs during a deep economic recession when monetary efforts and market forces have already pushed interest rates to their nominal zero bound this tool is meant to encourage lending spending and investment rather than hoarding cash which will lose value to negative deposit rates understanding negative interest ratesan interest rate is effectively the cost of borrowing this means that lenders charge borrowers interest when they take on any type of debt such as a loan or mortgage although it may seem strange there are instances where lenders may end up paying borrowers when they take out a loan this is called a negative interest rate environment negative rates are normally set by central banks and other regulatory bodies they do so during deflationary periods when consumers hold too much money instead of spending as they wait for a turnaround in the economy consumers may expect their money to be worth more tomorrow than today during these periods when this happens the economy can experience a sharp decline in demand causing prices to plummet even lower | |
when strong signs of deflation are present simply cutting the central bank s interest rate to zero may not be sufficient enough to stimulate growth in both credit and lending this means that a central bank must loosen its monetary policy and turn to negative interest rates | therefore a negative interest rate environment occurs when the nominal interest rate drops below 0 for a specific economic zone this effectively means that banks and other financial firms have to pay to keep their excess reserves stored at the central bank rather than receiving positive interest income in a negative interest rate environment an entire economic zone can be impacted as such storing cash incurs a fee rather than earning interest which means that consumers and banks have to pay interest in order to deposit money into an account special considerationswhile real interest rates can be effectively negative if inflation exceeds the nominal interest rate the nominal interest rate is theoretically bounded by zero this means that negative interest rates are often the result of a desperate and critical effort to boost economic growth through financial means the zero bound refers to the lowest level that interest rates can fall to some forms of logic dictate that zero would be the lowest level however there are instances where negative rates have been implemented during normal times for instance the target interest rate in switzerland was negative until september 2022 1 japan adopted a similar policy until march 2024 2with negative interest rates commercial banks are charged interest to keep cash with a nation s central bank rather than receiving interest this dynamic should theoretically trickle down to consumers and businesses but in reality commercial banks are generally reluctant to pass negative rates onto their customers consequences of negative ratesa negative interest rate policy nirp is an unusual monetary policy tool nominal target interest rates are set with a negative value which is below the theoretical lower bound of 0 | |
when people hoard money rather than spend or invest it aggregate demand collapses this leads to prices falling even further a slowdown or halt in real production and output and an increase in unemployment | a loose or expansionary monetary policy is usually employed to deal with such economic stagnation however if deflationary forces are strong enough simply cutting the central bank s interest rate to zero may not be sufficient to stimulate borrowing and lending but it s still not clear if a nirp is effective in achieving the goal in the countries that established it and in the way it was intended it s also unclear whether or not negative rates have successfully spread beyond excess cash reserves in the banking system to other parts of the economy individual depositors aren t charged negative interest rates on their bank accounts example of negative interest ratescentral banks in europe scandinavia and japan have implemented a negative interest rate policy on excess bank reserves in the financial system 3 this unorthodox monetary policy tool is designed to spur economic growth through spending and investment depositors would be incentivized to spend cash rather than store it at the bank and incur a guaranteed loss | |
how can interest rates turn negative | interest rates tell you how valuable money is today compared to the same amount of money in the future positive interest rates imply that there is a time value of money where money today is worth more than money tomorrow forces like inflation economic growth and investment spending all contribute to this outlook a negative interest rate by contrast implies that your money will be worth more not less in the future | |
what do negative interest rates mean for people | most instances of negative interest rates only apply to bank reserves held by central banks however we can ponder the consequences of more widespread negative rates first savers would have to pay interest instead of receiving it by the same token borrowers would be paid to do so instead of paying their lender therefore it would incentivize many to borrow more and larger sums of money and to forgo saving in favor of consumption or investment if they did save they would save their cash in a safe or under the mattress rather than pay interest to a bank for depositing it note that interest rates in the real world are set by the supply and demand for loans despite central banks setting a target as a result the demand for money in use would grow and quickly restore a positive interest rate | |
where do negative interest rates exist | some central banks have set a negative interest rate policy nirp in order to stimulate economic growth in the financial sector or else to protect the value of a local currency against exchange rate increases due to large inflows of foreign investment countries including japan switzerland sweden and even the ecb eurozone have adopted nirps at various points over the past two decades 4 | |
why would central banks adopt nirps to stimulate the economy | monetary policymakers are often afraid of falling into a deflationary spiral in harsh economic times such as deep economic recessions or depressions people and businesses tend to hold on to their cash while they wait for the economy to improve this behavior however can weaken the economy further as a lack of spending causes further job losses lower profits and price drops all of which reinforce people s fears giving them even more incentive to hoard as spending slows even more prices drop again creating another incentive for people to wait as prices fall further and so on when central banks have already lowered interest rates to zero the nirp is a way to incentivize corporate borrowing and investment and discourage hoarding of cash the bottom linenegative interest rates are a monetary policy in which interest is paid from lenders to borrowers rather than from borrowers to lenders this atypical scenario plays out during deep recessions or periods of deflation when monetary efforts and market forces have already pushed interest rates close to or zero such a tool aims to encourage lending spending and investment rather than hoarding some countries like switzerland and japan have until recently implemented negative interest rates | |
what is a negative interest rate policy nirp | a negative interest rate policy nirp is an unconventional monetary policy tool employed by a central bank whereby nominal target interest rates are set with a negative value below the theoretical lower bound of zero percent a nirp is a relatively new development since the 1990s in monetary policy used to mitigate a financial crisis and has only been officially enacted under extraordinary economic circumstances explaining negative interest rate policiesa negative interest rate means that the central bank and perhaps private banks will charge negative interest instead of receiving money on deposits depositors must pay regularly to keep their money with the bank this is intended to incentivize banks to lend money more freely and businesses and individuals to invest lend and spend money rather than pay a fee to keep it safe this happens during a negative interest rate environment during deflationary periods people and businesses hoard money instead of spending and investing the result is a collapse in aggregate demand which leads to prices falling even further a slowdown or halt in real production and output and an increase in unemployment a loose or expansionary monetary policy is usually employed to deal with such economic stagnation however if deflationary forces are strong enough simply cutting the central bank s interest rate to zero may not be sufficient to stimulate borrowing and lending the theory behind negative interest rate policy nirp negative interest rates can be considered a last ditch effort to boost economic growth basically it s put into place when all else every other type of traditional policy has proved ineffective and may have failed theoretically targeting interest rates below zero will reduce the costs to borrow for companies and households driving demand for loans and incentivizing investment and consumer spending retail banks may choose to internalize the costs associated with negative interest rates by paying them which will negatively impact profits rather than passing the costs to small depositors for fear that otherwise they will have to move their deposits into cash real world examples of nirpan example of a negative interest rate policy would be to set the key rate at 0 2 percent such that bank depositors would have to pay two tenths of a percent on their deposits instead of receiving any sort of positive interest though fears that bank customers and banks would move all their money holdings into cash or m1 did not materialize there is some evidence to suggest that negative interest rates in europe did cut down interbank loans there are some risks and potential unintended consequences associated with a negative interest rate policy if banks penalize households for saving that might not necessarily encourage retail consumers to spend more cash instead they may hoard cash at home instituting a negative interest rate environment can even inspire a cash run triggering households to pull their cash out of the bank in order to avoid paying negative interest rates for saving banks that wish to avoid cash runs can refrain from applying the negative interest rate to the comparatively small deposits of household savers instead they apply negative interest rates to the large balances held by pension funds investment firms and other corporate clients this encourages corporate savers to invest in bonds and other vehicles that offer better returns while protecting the bank and the economy from the negative effects of a cash run | |
what is a negative pledge clause | a negative pledge clause is a type of negative covenant that prevents a borrower from pledging any assets if doing so would jeopardize the lender s security this type of clause may be part of bond indentures and traditional loan structures | |
how a negative pledge clause works | negative pledge clauses help lenders or bondholders protect their investments when a bond indenture includes a negative pledge clause it prevents the bond issuer from taking on future debt that could compromise its ability to meet obligations to existing bondholders a negative pledge clause also limits the likelihood that a particular asset will be pledged more than once preventing conflict over which lending institution has the right to the asset if the borrower defaults mortgages sometimes include negative pledge clauses that prevent the borrower from encumbering their home advantages and disadvantages of a negative pledge clausebecause a negative pledge clause reduces the risk of a loan or bond issue it often allows the borrower to get a slightly lower interest rate this creates a win win situation that benefits both the lender and borrower the negative pledge clause mitigates risks to bondholders by restricting the activities in which the issuer can participate most often this means preventing the issuer from using the same assets to secure another debt obligation on the downside violating a negative pledge clause can trigger a default on the loan albeit a technical default lenders generally give an allotted amount of time such as 30 days to remedy a covenant break before moving ahead with default procedures lowers risk for the lenderlower interest rates for the borrowerensures that lenders will have recourse if the borrower declares bankruptcylimits the borrower s ability to sell or borrow against their assets in the future may cause borrower to default if they inadvertently break the covenant they are difficult to enforce for lenders special considerations | |
when a financial institution provides an unsecured loan to an individual or entity it may include a negative pledge clause in the contract in order to protect itself | in this case the clause prevents the borrower from using its own assets to secure other sources of financing if the borrower secures other loans the original loan by the first institution becomes less secure because the borrower now has a greater amount of debt obligations and the original institution may not have priority status for repayment in the case of home mortgages many loan agreements include terminology that restricts the borrower from using the mortgaged property as collateral against any new loan except in the case of refinancing | |
what is a negative covenant | a negative covenant is a contractual agreement that binds prevents one party from taking a certain action in other words it is an agreement not to do something negative covenants might prohibit a person or company from selling certain assets or taking on more than a certain amount of debt for example | |
what is a double negative pledge | a double negative pledge is a promise not to enter into negative covenants with any third party in other words it is a negative covenant that prohibits other negative covenants this type of agreement is frequently used by banks or other lenders to ensure that they have a priority claim to a borrower s assets if they declare bankruptcy 1 | |
what happens if a borrower breaks a negative pledge clause | the loan agreement will specify the type of recourse that is available to a lender if the borrower sells or otherwise encumbers property protected by a negative pledge clause this will usually allow the lender to sue the borrower or accelerate the loan s repayment schedule however the lender cannot pursue action against any third party only the borrower 2 | |
what is a negative return | a negative return occurs when a company experiences a financial loss or investors experience a loss in the value of their investments during a specific period of time in other words the business or individual loses money on either their business or their investment the term negative return can refer to either a net loss across all your investments and businesses or to a loss on any specific investment or business a negative return for a business is also referred to as a negative return on equity understanding a negative returna negative return is most commonly utilized when referring to an investment investors allocate capital to certain securities they believe will appreciate based on their research whether that be fundamental research or technical research if the securities they choose appreciate in value they will have a positive return conversely if the securities depreciate in value resulting in a loss they will have a negative return on their investments investors can offset the losses in a portfolio against the gains to reduce their capital gains tax return on investment roi is a financial metric often used to calculate an individual s returns negative returns can also be used to refer to the profit or loss of a business in a specific period for example if a company generated 20 000 in revenue but had 40 000 in costs it would then have a negative return some businesses report a negative return during their early years because of the amount of capital that initially goes into the business to get it off the ground spending a lot of money capital when not bringing in any revenue will lead to a loss new businesses generally do not begin making a profit until after a few years of being established investors in a company will be willing to stick around if they know that the company has the potential to quickly turn its negative return into a positive return and bring in high profits sales or asset turnover however if a business is continuously experiencing negative returns without a solid business plan to turn operations around then investors may lose faith in the company this can result in a decrease in a company s share price as well as difficulty in obtaining financing continuous negative returns in business will lead to bankruptcy negative returns can also be used in relation to projects that companies invest in usually requiring debt financing for example a company decides to purchase new equipment to expand its business and borrows money to do so if the interest rate on the loan used to buy the equipment is higher than the returns the company is receiving from the new equipment it will have experienced a negative return on that capital investment example of a negative returnassume charles received 1 000 as a gift and wants to invest that money he does research on a few stock suggestions provided to him by his friend he decides to invest in two stocks equally company abc and company xyz he buys 500 of each stock after one year charles looks at his portfolio he sees that company abc has appreciated in value to 600 while company xyz has depreciated in value to 200 while he has a positive return on company abc he has a negative return on company xyz also his overall portfolio has a negative return of 200 the invested value was 1 000 and the current value is 800 these are unrealized gains and losses and charles can either continue holding the stocks or sell them if he sells them the loss on company xyz is tax deductible on the gains of company abc reducing charle s capital gains tax | |
what is the negative volume index nvi | the negative volume index nvi is a technical indication line that integrates volume and price to graphically show how price movements are affected by down volume days understanding negative volume index nvi the negative volume index nvi can be used with the positive volume index pvi both indexes were first developed by paul dysart in the 1930s and gained popularity in the 1970s after being spotlighted in norman fosback s book entitled stock market logic the positive and negative volume indexes are trendlines that can help an investor follow how a security s price is changing with the effects of volume pvi and nvi trendlines are typically available through advanced technical charting software programs like metastock and equityfeedworkstation trendlines are usually added below a candlestick pattern similar to the visualization of volume bar charts negative volume index trendlines can potentially be the best trendlines for following mainstream smart money movements typically characterized by institutional investors positive volume index trendlines are usually more broadly associated with high volume market trending effects which are known to be more heavily influenced by both smart money and noise traders nvi can be useful after a price comes down from high volume trading low volume days can show how institutional money and mainstream investors are trading a security generally it is best to follow both the nvi and pvi together as overall they represent how price is being influenced by volume nvi calculationscalculation of the nvi depends on how volume for a single day compares with the previous day s trading volume nvi will only change when the volume has decreased from one day to the next thus if the current volume is higher there is no change if the volume is lower than the previous day then nvi is calculated using the following equation nvi t p t p t 1 p t 1 nvi t 1 where nvi t negative volume index at time t p t price or the index level at time t begin aligned text nvi text t frac text p text t text p text t 1 text p text t 1 times text nvi text t 1 textbf where text nvi text t text negative volume index at time t text p text t text price or the index level at time t end aligned nvit pt 1 pt pt 1 nvit 1 where nvit negative volume index at time tpt price or the index level at time t investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal | |
what is negotiable | the word negotiable has two distinct meanings in business understanding negotiablemany securities such as stock shares are called negotiable instruments because their ownership can easily be transferred nevertheless the value of a security depends on the market and varies constantly other negotiable instruments such as cash cannot have their value modified a 10 bill will always be worth 10 even though the buying power of 10 can fluctuate with inflation or deflation still it is a negotiable instrument because its legal ownership can be readily transferred from one party to another a legal document or instrument is termed negotiable if it is used in lieu of cash the document represents a promise of payment at some point in the future in context the word negotiable implies a cash value and comes with specific instructions about the timing of future cash flows the term negotiable is used to suggest the document comes with the same good faith commitment as cash characteristics of a negotiable instrumentnegotiable instruments contain an unconditional promise to render payment for an exact sum stated on the instrument the agreement includes instructions on timing such as on demand or at some date in the future some negotiable instruments must be made out to a specific person or party negotiable instruments can be redeemed for cash or transferred to another party for a piece of paper to be as good as cash or negotiable by law it must be a written document signed by the entity drawing on the instrument making it marketable or transferable it must also have an explicit order or promise to pay a specific amount of money types of negotiable instrumentsseveral types of negotiable instruments are used in financial transactions a check is a dated draft instructing a bank to make a specific amount payable on demand checks can be written by an individual or a company stipulating an amount to be paid to the payee | |
when a check is brought to a bank to be cashed or deposited the money is withdrawn from the payor s bank account | a certificate of deposit cd is a negotiable instrument offered by most banks the bank pays the customer a set amount of interest in return for depositing money for a set period of time which may be as little as three months or as long as five years or more a cd is negotiable in the sense that the customer may withdraw the balance on demand although that means losing some of the interest and paying penalty fees a promissory note is a document in which one party promises to pay another party a specific amount at a predetermined date in the future a promissory note contains similar financial details to other negotiable instruments including the amount owed date of issuance interest rate and the signature of the issuer or payor promissory notes are typically used to obtain financing from a source other than a financial institution however promissory notes are issued by the debtor the person who owes the money rather than the creditor as is typical for most credit transactions a bill of exchange is essentially a post dated check that does not charge interest on the amount owed it is a binding agreement in which one party is responsible for paying another party on demand at a future date bills of exchange are commonly used in international trade between importers and exporters it is essentially a pay on delivery system a time draft a type of bill of exchange makes a demand for payment at some point in the future a time draft is typically used in international trade and allows the buyer the importer time to pay the seller of the goods the exporter a sight draft is also used in international trade in it the importer agrees to pay the stated amount as soon as the goods are delivered negotiable vs non negotiablenon negotiable indicates that the price of a security or terms of a contract cannot be modified non negotiable can also refer to a security that cannot easily be transferred from one party to another in lease agreements the monthly amount owed by the tenant is almost always non negotiable the landlord has established a fixed monthly rent or lease payment for the duration of the contract other contracts might mix negotiable and non negotiable terms an employment agreement might allow the salary to be negotiated but the employee conduct policy would be non negotiable in this case negotiable means that a contract s terms can be modified depending on the circumstances and parties involved certain securities are non negotiable as in the case of a u s government savings bond which can be cashed only by the bond s owner negotiable securities can be transferred exchanged or resold between different people coins and paper money are negotiable securities negotiable securities are considered liquid meaning they can easily be transferred or sold in the market non negotiable instruments are considered illiquid since they cannot be resold in the market before signing a contract it s important to know which terms are negotiable and which terms are non negotiable | |
what is a negotiable instrument | a negotiable instrument is a document that has monetary value guaranteeing payment of a specified amount negotiable instruments can be exchanged and sold allowing their legal ownership to be easily transferred from one party to another cash is a negotiable instrument | |
what are non negotiable documents | non negotiable documents are contracts that are issued to a single owner they cannot be readily transferred to another owner for example u s government savings bonds are non negotiable meaning they can only be cashed by the owner of the bond | |
what is a non negotiable check | a non negotiable check has no monetary value it is essentially a paper receipt provided to a payee as a record of payment non negotiable checks are typically given to employees whose paychecks are automatically deposited the bottom linenegotiable instruments are legally binding documents that guarantee a stated monetary value when their ownership is transferred from one party to another they can be exchanged for goods or cash or can be deposited by their owners the term negotiable can also describe a contract or offer that is not fixed meaning its terms are up for discussion | |
negotiable bill of lading | lading is the process of loading cargo onto a ship or vessel and a negotiable bill of lading is one kind of bill of lading the bill of lading is a legal document between the shipper and carrier detailing the type quantity and destination of goods being carried the negotiable bill of lading is distinguished by the fact that it is a contract of carriage that can be transferred to a third party | |
how a negotiable bill of lading works | the bill of lading serves as a receipt of shipment when the goods are delivered at the predetermined destination that is the recipient acknowledges that the goods have been delivered by signing the document of course there are different kinds of bills of lading each type with unique stipulations and conditions for example the ocean bill of lading applies only to cargo that is shipped across international waters a negotiable bill of landing can be transferred to a third party through consignment this happens when the consignee the person or entity that is the buyer and is financially responsible for the goods signs or endorses the document and delivers it to the new consignee the third party to transfer the negotiable bill of lading the consignor the person or business shipping the goods must stamp and sign the bill then the carrier must deliver it a negotiable bill of lading must be written to the order of the consignee it must be a clean bill of lading clean bills of lading vs straight bill of ladinga clean bill of lading is issued by a carrier declaring that goods have been received and released in the appropriate condition without defects the product carrier issues a clean bill of lading after inspecting the goods if the bill of lading is claused or fouled when it notes that the products or goods are damaged or defective a uniform bill of lading or straight bill of lading was first adopted in 1909 and spelled out how a carrier can limit its liability it may not be transferred and is only deliverable to the named consignee recipient like any bill of lading the uniform bill of lading also lists the goods being transported and serves as a contract of the terms of the shipment 1 | |
what is a negotiable certificate of deposit ncd | a negotiable certificate of deposit ncd also known as a jumbo cd is a certificate of deposit cd with a minimum face value of 100 000 though ncds are typically 1 million or more they are guaranteed by the bank and can usually be sold in a highly liquid secondary market but they cannot be cashed in before maturity because of their large denominations ncds are bought most often by large institutional investors that typically use them as a way to invest in a low risk low interest security a yankee cd is one example of an ncd understanding a negotiable certificate of deposit ncd an ncd is short term with maturities ranging from two weeks to one year interest is usually paid either twice a year or at maturity or the instrument is purchased at a discount to its face value interest rates are negotiable and yield from an ncd is dependent on money market conditions history of ncdsncds were introduced in 1961 by first national city bank of new york which is now citibank 1 the instrument allowed banks to raise funds that could be used for lending ncds were designed to ease a deposit shortage that had affected banks during the previous decade many bank depositors transferred their cash from checking accounts which did not pay interest to other investments such as treasury bills t bills commercial paper and bankers acceptances the first national city bank of new york loaned 10 million in government securities to a new york broker that agreed to accept trades in cds this created a secondary market in which the ncds could trade by 1966 investors held 15 billion in outstanding ncds that amount grew to more than 30 billion in 1970 and 90 billion in 1975 1participants in the market for ncds primarily comprise wealthy individuals and institutions such as corporations insurance companies pension funds and mutual funds the market attracts those seeking a return on cash in a low risk and liquid investment the amount up to which the fdic will insure an ncd 2advantages of ncdsone feature of the ncd is its low risk ncds are insured by the federal deposit insurance corporation fdic for up to 250 000 per depositor per bank this was increased from 100 000 in 2010 with the passage of the dodd frank wall street reform and consumer protection act 3 therefore the product attracts those who would invest in other low risk investments such as u s treasury securities that said ncds are generally considered riskier compared with t bills which are backed by the u s government s full faith and credit 4 as such ncds offer higher interest rates compared to those of treasury bills ncds offer higher interest rates than treasury bills disadvantages of ncdsmost ncds are not callable meaning the bank cannot redeem the instrument prior to the maturity date however if a bank can call the ncd it will do so when interest rates fall hence investors will have difficulty finding another ncd that pays a similar rate of interest the initial rate to the ncd holder will be higher to compensate the investor for this risk | |
where can i purchase an ncd | ncds are typically issued by banks and credit unions they are also traded on the secondary market which can be accessed through financial brokers | |
how much of a ncd is fdic or ncua insured | ncds are insured up to 250 000 per depositor per bank any amount over this is not insured 2 | |
what is the typical term for an ncd | ncds are short term investments with terms ranging from a week up to a year on average the bottom linefor investors with significant amounts of cash and a short period of time ncds are a safe and stable way to earn interest together with treasury bills ncds offer a good combination of liquidity and earning potential without the volatility of potentially higher earning instruments such as a stocks | |
what is a negotiable instrument | a negotiable instrument is a signed document that promises a payment to a specified person or assignee in other words it is a formalized type of iou a transferable signed document that promises to pay the bearer a sum of money at a future date or on demand common examples of negotiable instruments include personal checks cashier s checks money orders certificates of deposit cds promissory notes and traveler s checks the person receiving the payment known as the payee must be named or otherwise indicated on the instrument because they are transferable and assignable some negotiable instruments may trade on a secondary market understanding negotiable instrumentsnegotiable instruments are transferable so the holder can take the funds as cash or use them for a transaction or other way as they wish the fund amount listed on the document includes the specific amount promised and must be paid in full either on demand or at a specified time a negotiable instrument can be transferred from one person to another once the instrument is transferred the holder gains full legal title to the instrument 1these documents provide no other promise on the part of the entity issuing the instrument in addition no other instructions or conditions can be made for the bearer to receive the amount listed on the negotiable instrument for an instrument to be negotiable it must be signed with a mark or signature by the maker of the instrument the one issuing the draft this entity or person is known as the drawer of funds the term negotiable refers to the fact that the note in question can be transferred or assigned to another party non negotiable describes one that is firmly established and can t be adjusted or amended examples of negotiable instrumentsone of the more well known negotiable instruments is the personal check it serves as a draft payable by the payer s financial institution once it s received in the exact amount specified similarly a cashier s check serves the same function but it requires the funds to be allocated or set aside for the payee prior to the check being issued 1money orders are similar to checks but may or may not be issued by the payer s financial institution often cash must be received from the payer before the money order is issued once the money order is received by the recipient it can be exchanged for cash traveler s checks function differently as they require two signatures to complete a transaction at the time of issue the holder must sign the document to provide a specimen signature once the payer determines to whom the payment will be issued a countersignature must be provided for payment traveler s checks are generally used when someone is traveling to a foreign country and is looking for a payment method that provides an additional level of security against theft or fraud while traveling 2other common types of negotiable instruments include bills of exchange promissory notes drafts and cds | |
what is a negotiable instrument used for | a negotiable instrument promises a payment to a specified person or assignee it is transferable so it allows the holder to take the funds as cash then use the money as they see fit | |
what is the benefit of a negotiable instrument | a negotiable instrument is easily transferable there are no formalities and limited paperwork involved in making such a transfer the instrument s ownership can be shifted simply by delivery or by a valid endorsement | |
what are the two kinds of negotiable instruments | there are two basic types of negotiable instruments an order to pay this covers drafts and checks and a promise to pay promissory notes and cds 3the bottom linea negotiable instrument like as a personal or cashier s check is a document that promises an amount of money to a particular person or entity it s characterized by being transferable ownership of the instrument can be handed over simply by delivery or by a valid endorsement the most common types of negotiable instruments are personal cashier s traveler s checks money orders promissory notes and cds | |
what is a negotiable order of withdrawal now account | a negotiable order of withdrawal account is an interest earning demand deposit account a customer with such an account is permitted to write drafts against money held on deposit a negotiable order of withdrawal account is also known as a now account understanding negotiable order of withdrawal accountin the search to optimize returns on liquid funds investors have several choices including interest bearing checking accounts high yield savings accounts money market accounts and certificates of deposit the search for these types of accounts most often turns to commercial banks mutual savings banks and savings and loan associations up until 2011 now accounts were a viable choice for consumers looking to get at least some return from their idle cash prior to the 2010 dodd frank act u s banking regulations distinguished between now accounts and demand deposit accounts although similarities exist this was because regulation q reg q prohibited banks from paying any interest on demand deposit checking accounts now accounts and super now accounts were demand deposit alternatives with a temporary holding period that could actually pay some interest dodd frank repealed req q allowing banks to pay interest on demand deposits which basically eliminated any advantage that now accounts offered history of negotiable order of withdrawal accountsthe history of preventing depositors from earning interest on accounts dates back to the great depression significant bank turmoil marked this era in the 1930s many viewed the interest payments on demand deposits as excessive competition leading to diminished profit margins this was primarily a factor for large new york banks as interest rates rose in the 1950s many banks began trying to get around the ban this started with non pecuniary rewards such as offering more convenient features additional branch offices and giveaways of consumer goods to attract new customers implicit interest also gradually gained traction this included preferred loan rates banks often correlated these with a customer s demand deposit balances banks also began to display below cost charges for common services such as check clearing ronald haselton the former president and ceo of the worcester massachusetts based consumer savings bank was the first to develop the now account officially this became a direct challenge to the ban on interest payments on deposit accounts in 1974 congress permitted now accounts in massachusetts and new hampshire in 1976 the allowance was extended to all new england with a 5 interest rate ceiling these accounts also came with the requirement of a seven day advance notice in 1980 access to now accounts was expanded nationwide then in 1986 the 5 ceiling was lifted on these accounts the removal of the ceiling led to a new iteration of the now account the super now account super now accounts were known for offering higher rates of interest than regular now accounts in 2010 provisions of the dodd frank act led to a repeal of reg q the repeal of reg q fully eliminated the prohibition on interest earning checking accounts as a result banks were given much broader latitude to develop interest paying checking account offerings now accounts vs demand deposit accountsin the modern day now accounts are generally only a thing of the past beyond the interest benefit there main difference from demand deposit checking accounts when they were widely available was the seven day holding period which required customers to plan ahead for a possible seven day advance notice not all banks invoked the holding period but it was the main attribute that characterized the accounts overall along with their measurable interest rate after the repeal of req q checking account offerings became more widely varied throughout history checking accounts have been relied on for immediate withdrawals they are also relied on by banks for some short term cash needs in general competition among mainstream banks is relatively low with most banks offering little to no interest at all accounts that do offer the highest relative interest rates usually come with some lengthy requirements for balance levels routine direct deposits and debit card usage specialty checking account products can also come with cash back offers or some other simple extra features as well | |
what is the negotiated dealing system nds | the negotiated dealing system or nds is an electronic trading platform operated by the reserve bank of india rbi to facilitate the issuing and exchange of government securities and other types of money market instruments the goal of the nds was to reduce inefficiencies stemming from telephone orders and manual paperwork while increasing transparency for all market participants understanding the negotiated dealing systemthe negotiated dealing system was introduced in february 2002 to help the reserve bank of india or rbi enhance the dealings of fixed income investments while the rbi owns the nds it is administered by the clearing corporation of india ltd ccil prior to the nds the country s government securities market was primarily telephone based which meant that buyers and sellers had to place trades over the phone submit physical subsidiary general ledger transfer forms and issue checks for the settlement of funds to the reserve bank of india these slow and inefficient procedures led to the development and implementation of the nds in august 2005 the rbi introduced the negotiated dealing system order matching system or nds om an electronic screen based anonymous order driven trading system for dealing in government securities the system is designed to bring transparency to secondary market transactions while enabling members to place bids and offers directly on the nds om screen | |
how the nds works | there are two types of nds om members including many other countries have similar electronic systems in place for managing government securities money market accounts and related securities to increase transparency and lower costs for more information about the negotiated dealing system see the rbi s negotiated dealing system overview nds modulesthe negotiated dealing system consists of two modules which are designed for different types of member institutions these modules include | |
what is negotiation | negotiation is a strategic discussion intended to resolve an issue that both parties find acceptable negotiations involve give and take where one or both parties will usually need to make some concessions negotiation occurs between buyers and sellers employers and prospective employees two or more governments and other parties stages of negotiationaccording to a 2022 study by fidelity 58 of young professionals accepted a job offer without negotiating for those who did negotiate 87 received at least part of what they asked for 1negotiation processthe negotiation process continues until both parties agree to a resolution or negotiations break off without one experienced negotiators will often try to learn as much as possible about the other party s position before a negotiation begins including the strengths and weaknesses of that position how to prepare to defend their positions and any counter arguments the other party will likely make the time it takes for negotiations to conclude depends on the circumstances negotiation can take as little as a few minutes when bargaining the price of an item at a garage sale or much longer like in company mergers and acquisitions some negotiations require a skilled negotiator such as a professional advocate real estate agent or attorney negotiation strategiesexamples of negotiationa car buyer may be interested in a new suv but doesn t want to pay the full manufacturer s suggested retail price msrp they may offer what they consider a fair price the dealer can accept the offer or counter with another price a good negotiator may be able to reduce the cost and the dealer may still earn a profit an individual s new job offer may come with a low salary an employer s first compensation offer is often not its best possible offer so it may have some room to negotiate even if a higher salary isn t feasible the employer may be willing to offer something additional such as more vacation time or better benefits this is where the individual may succeed with good negotiation skills | |
what makes a good negotiator | some of the key skills of a good negotiator are the ability to listen to think under pressure articulate their point of view and compromise within reason | |
what is the zone of possible agreement zopa | zopa stands for the zone of possible agreement zopa is a way of visualizing where the parties positions in a negotiation overlap it is within that zone that compromises can be reached | |
what is batna | batna means the best alternative to a negotiated agreement it refers to the next course of action a negotiator may take if a negotiation fails to arrive at a satisfactory conclusion veteran negotiators often go into a negotiation knowing what their batna is the bottom linenegotiating is essential in daily life business and international affairs being a successful negotiator means defining a personal goal trying to understand the other party s position and compromising if necessary a successful negotiation leaves everyone satisfied that they have gotten a deal they can live with | |
nelson peltz is a renowned activist investor and billionaire with peter may and edward garden he founded trian fund management l p in 2005 | peltz has served on the boards of multiple corporations including ingersoll rand mondelez international and proctor gamble nelson peltz co founded trian fund management l p in 2005 he is an activist investor who seeks to own a significant stake in publicly traded companies peltz has sat on the boards of proctor gamble ingersoll rand and the heinz company | |
what is neoclassical economics | neoclassical economics is a broad theory that focuses on supply and demand as the driving forces behind the production pricing and consumption of goods and services it emerged in around 1900 to compete with the earlier theories of classical economics one of the key early assumptions of neoclassical economics is that utility to consumers not the cost of production is the most important factor in determining the value of a product or service this approach was developed in the late 19th century based on books by william stanley jevons carl menger and l on walras neoclassical economics theories underlie modern day economics along with the tenets of keynesian economics although the neoclassical approach is the most widely taught theory of economics it has its detractors understanding neoclassical economicsneoclassical economics emerged as a theory in the 1900s 1 neoclassical economists believe that a consumer s first concern is to maximize personal satisfaction also known as utility therefore they make purchasing decisions based on their evaluations of the utility of a product or service this theory coincides with rational behavior theory which states that people act rationally when making economic decisions in other words people make a logical choice between two options based on their perception of which one is better for them further neoclassical economics stipulates that a product or service often has value above and beyond its production costs while classical economic theory assumes that a product s value derives from the cost of materials plus the cost of labor neoclassical economists say that consumer perceptions of the value of a product affect its price and demand 2finally this economic theory states that competition leads to an efficient allocation of resources within an economy the forces of supply and demand create market equilibrium in contrast to keynesian economics the neoclassical school states that savings determine investment it concludes that equilibrium in the market and growth at full employment should be the primary economic priorities of government these principles can be summed up in three assumptions that underpin neoclassical economic theory criticisms of neoclassical economicscritics of neoclassical economics believe that the neoclassical approach cannot accurately describe actual economies they maintain that the assumption that consumers behave rationally in making choices ignores the vulnerability of human nature to emotional responses neoclassical economists maintain that the forces of supply and demand lead to an efficient allocation of resources other critiques of neoclassical economics include some critics also blame neoclassical economics for inequalities in global debt and trade relations because the theory holds that labor rights and living conditions will inevitably improve as a result of economic growth neoclassical economics in the real worldneoclassical economic theory is important because of how it affects both markets and economic policy the principles of neoclassical economics can be used by companies to set prices and grow their business a business that understands neoclassical economics for example won t just look at the cost of making a product when setting a price it will also consider what competitors are charging what customers are willing to pay and how to use branding to increase what customers are willing to pay a savvy business owner for example could create a marketing campaign that positions their product as the favorite choice of popular figures on social media by influencing customer perception of their brand the business will be able to charge more for their products governments and banks can also follow neoclassical principles which will impact economic policy and market regulation followers of neoclassical economics believe that there is no upper limit to the profits that can be made by smart capitalists since the value of a product is driven by consumer perception this difference between the actual costs of the product and the price it is sold for is termed the economic surplus this type of thinking was evident in the lead up to the 2008 financial crisis modern economists believed that synthetic financial instruments had no price ceiling because investors in them perceived the housing market as limitless in its potential for growth as a result many investment banks and lenders continued to grow the market for subprime mortgages assuming that continued growth in the market would prevent investment instruments that included these mortgages from losing value 4 these financial instruments were mostly unregulated by the federal government allowing lenders and investors to drive growth in the subprime mortgage market 5both the economists and the investors were wrong and the market for those financial instruments crashed the housing market did eventually stop growing and begin to decline subprime lenders found themselves underwater on mortgages that they could not afford they began to default in large numbers 6 this not only left huge numbers of borrowers unable to afford their homes but it also undermined the stability of the banks and lenders who had backed their mortgages 7 the entire global economy suffered and required government intervention to stabilize | |
what are the main elements of neoclassical economics | the main assumptions of neoclassical economics are that consumers make rational decisions to maximize utility that businesses aim to maximize profits that people act independently based on having all the relevant information related to a choice or action and that markets will self regulate in response to supply and demand | |
what is the neoclassical growth theory | neoclassical growth theory is an economic theory that outlines how a steady economic growth rate results from a combination of three driving forces labor capital and technology the national bureau of economic research names robert solow and trevor swan as having the credit of developing and introducing the model of long run economic growth in 1956 the model first considered exogenous population increases to set the growth rate but in 1957 solow incorporated technology change into the model 1 | |
how the neoclassical growth theory works | the theory states that short term equilibrium results from varying amounts of labor and capital in the production function the theory also argues that technological change has a major influence on an economy and economic growth cannot continue without technological advances neoclassical growth theory outlines the three factors necessary for a growing economy these are labor capital and technology however neoclassical growth theory clarifies that temporary equilibrium is different from long term equilibrium which does not require any of these three factors special considerationthis growth theory posits that the accumulation of capital within an economy and how people use that capital is important for economic growth further the relationship between the capital and labor of an economy determines its output finally technology is thought to augment labor productivity and increase the output capabilities of labor therefore the production function of neoclassical growth theory is used to measure the growth and equilibrium of an economy that function is y af k l 4however because of the relationship between labor and technology an economy s production function is often rewritten as y f k al increasing any one of the inputs shows the effect on gdp and therefore the equilibrium of an economy however if the three factors of neoclassical growth theory are not all equal the returns of both unskilled labor and capital on an economy diminish these diminished returns imply that increases in these two inputs have exponentially decreasing returns while technology is boundless in its contribution to growth and the resulting output it can produce example of the neoclassical growth theorya 2016 study published in economic themes by dragoslava sredojevi slobodan cvetanovi and gorica bo kovi titled technological changes in economic growth theory neoclassical endogenous and evolutionary institutional approach examined the role of technology specifically and its role in the neoclassical growth theory 5the authors find a consensus among different economic perspectives all pointing to technological change as a key generator of economic growth for example neoclassicists have historically pressured some governments to invest in scientific and research development toward innovation endogenous theory supporters emphasize factors such as technological spillover and research and development as catalysts for innovation and economic growth lastly evolutionary and institutional economists consider the economic and social environment in their models for technological innovation and economic growth | |
what is neoliberalism | neoliberalism is a policy model that encompasses both politics and economics it favors private enterprise and seeks to transfer the control of economic factors from the government to the private sector many neoliberal policies concern the efficient functioning of free market capitalism and focus on limiting government spending government regulation and public ownership neoliberalism is often associated with the leadership of margaret thatcher the prime minister of the u k from 1979 to 1990 and ronald reagan the 40th president of the u s from 1981 to 1989 12more recently neoliberalism has been associated with austerity policies and attempts to cut government spending on social programs investopedia sydney saporitounderstanding neoliberalismneoliberalism is a political and economic philosophy that emphasizes free trade deregulation globalization and a reduction in government spending it s related to laissez faire economics a school of thought that prescribes minimal government interference in the economic issues of individuals and society laissez faire economics is the philosophy that minimal state interference and participation in the economy will maximize economic growth and prosperity additionally neoliberalism is sometimes confused with libertarianism however neoliberals typically advocate for more government intervention in the economy and society than libertarianism for example while neoliberals usually favor progressive taxation at low rates libertarians tend to advocate for a low flat tax or total elimination of income taxes the two often differ philosophically as well with libertarians focused on economic freedom and rights and neoliberals more focused on the free market economy as the way to the goal of more growth in addition neoliberals often do not oppose measures such as bailouts of major industries which are anathema to libertarians characteristics of neoliberalismneoliberalism involves the belief that greater economic freedom leads to greater economic and social progress for individuals it supports president jimmy carter s deregulation of the airline industry in 1978 is an example of a neoliberal policy in action the airline deregulation act removed government control over fares routes and who could enter the market 3liberalism vs neoliberalismat its core liberalism is a broad political philosophy it holds liberty to a high standard and defines all social economic and political aspects of society including the role of government neoliberalism is essentially an economic ideology the policies of neoliberalism are more narrowly focused and are primarily concerned with markets and the policies and measures that influence the economy criticism of neoliberalismthere are many criticisms of neoliberalism below are the most common ones one common criticism of neoliberalism is that advocating for a free market approach in areas such as health and education is misguided because these services are public services public services are not subject to the same profit motivation as other industries more importantly adopting a free market approach in health and education can lead to an increase in inequality and the underfunding of resources necessary for the long term well being and viability of an economy the adoption of neoliberal policies in the western world has run concurrently with a rise in inequality in both wealth and income while skilled workers may be in a position to command higher wages low skilled workers are more likely to see stagnant wages policies associated with neoliberalism are thought by some to encourage the presence of monopolies which increase the profits of corporations at the expense of benefits to consumers 4contrary to what proponents of neoliberalism typically claim capital deregulation has not necessarily helped economic development rather capital deregulation has led to an increase in financial instability including economic events that at times have sent shockwaves around the world in fact an international monetary fund imf report on neoliberalism reveals that an increase in capital flows has been a factor in the increased risk of adverse economic cycles 5studies suggest that neoliberal policies increase inequality this inequality can hinder the long term growth prospects of an economy on one end of the spectrum those who earn a low income have limited spending power at the same time those who become richer have a higher propensity to save 6in the latter scenario wealth doesn t trickle down in the way that proponents of neoliberalism claim that it will neoliberalism s emphasis on economic efficiency has encouraged globalization which opponents say causes factories to be closed and jobs to be moved overseas critics of neoliberalism claim that its call to replace government owned corporations with private ones can cause various forms of societal harm such as reducing access to essential services and harming workers rights in addition those opposed to neoliberalism claim that it is anti democratic and can lead to exploitation and social injustice they also claim it can lead to corporations using their power and resources to subvert the will of the majority of people others assert that it leads to support for undemocratic regimes that implement neoliberal economics | |
what is neoliberalism in simple terms | neoliberalism is an economic model or philosophy that emphasizes that in a free society greater economic and social progress can be made when government regulation is minimized government spending and taxes are reduced and the government doesn t have strict control over the economy neoliberalism does not oppose all government intervention however it does wish to see it limited to only when it s necessary to support free markets and free enterprise | |
what are the effects of neoliberalism | some effects might include access to more products and services to meet consumer demand greater revenue and higher profits price reductions due to greater competition can also be an effect savings can result from a more efficient allocation of resources the better organization of workforces and the ability to hire needed talent for specific jobs can result from neoliberal policies as well others might point out some of the adverse effects believed to be associated with neoliberalism these could include economic inequality the growth of monopolies a lack of job security the loss of jobs due to outsourcing and an increasing indifference to the needs and well being of individuals | |
what is an example of neoliberalism | the north american free trade agreement nafta is one example by this agreement canada mexico and the u s agreed to remove many trade restrictions between their countries to increase economic benefits to each the bottom linebroadly speaking neoliberalism is an economic policy stance that governments should take a limited role in economies and privatize many functions similar to other economic policy ideas and theories there are advantages and disadvantages to neoliberalism | |
what is the nepalese rupee npr | the nepalese rupee npr is the national currency of nepal it is administered by the central bank of nepal the nepal rastra bank the most common symbol used when referencing the npr is rs although rp is also sometimes used understanding the nepalese rupee npr the npr was introduced in 1932 replacing the previous currency the nepalese mohar its exchange rate is based on a peg set against the indian rupee inr in 1993 nepal introduced new convertibility to its currency the change pegged the npr to the inr at a rate of npr 160 to inr 100 12the npr is divided into units known as paisa and is circulated in both coin and banknote forms one rupee is made up of 100 paisa today the npr s coins are denominated in units of 1 5 10 25 and 50 paisa coins are also denominated in rupees 1 2 5 and 10 the banknotes are denominated in units of 1 2 5 10 20 50 100 500 and 1 000 rupees 1exchanging nprtransacting in the npr can be difficult for foreigners because there are three primary exchange rates operating in nepal an official central bank rate a legal private bank rate and an illegal black market rate of these the most favorable exchange rates are generally found in the black market for this reason much local commerce takes place at the black market exchange rates most tourists however will use the private banks and will therefore obtain a less favorable rate the same is true for formal exchange rate businesses and the foreign exchange services offered at the kathmandu airport these authorized agents will transact at private banking rates because of the legal ambiguities involved travelers are advised to obtain and keep receipts for all their currency exchange transactions in order to be able to prove that only legal agents were used nepal s economynepal s economy has grown at an average rate of roughly 4 between 1965 and 2019 more recently gross domestic product gdp growth has risen above the 5 threshold with the past three years showing growth of over 6 66 2 37 and 4 25 respectively between 2008 and 2016 inflation hovered around 9 but dropped to roughly 3 6 in 2017 since then it has edged back up and was slightly higher than 4 in 2021 34relative to the usd the npr has depreciated over the past 10 years in september 2009 1 usd was equivalent to just over 77 npr however by october 2022 the value of 1 usd had risen to approximately 130 npr 5 | |
how much is 1 u s in nepal | in nepal 1 u s is worth 130 6 nepalese rupees as of oct 2 2022 it is approximately 127 rupees to one euro 5 | |
is the nepal rupee the same as the indian rupee | no the nepal rupee is not the same as the indian rupee they are two different currencies belonging to two different nations the nepal rupee however is pegged to the indian rupee rupee is the name of the currency for many countries much as the dollar is for example the u s dollar canadian dollar and australian dollar | |
which is the lowest currency in the world | the currency with the lowest value in the world is the iranian real the reason its currency is so low is because of its poor economy which has been battered by global sanctions due to the country s involvement in terrorism and its general political instability 6 | |
what is a nest egg | a nest egg is a substantial sum of money or other assets that have been saved or invested for a specific purpose such assets are generally earmarked for longer term objectives the most common being retirement buying a home and education the term can also refer to money kept aside as a reserve to deal with unexpected emergencies such as a medical problem or urgent housing repairs nest egg has been used to refer to savings since the late 17th century the term is believed to have been derived from poultry farmers tactic of placing eggs both real and fake in hens nests to induce them to lay more eggs which meant more income for these farmers nest eggs explainedthe foremost investment objective of a nest egg is generally preserving capital since it represents funds that have been accumulated over a considerable time however the portfolio should also have a growth component to offset the effects of inflation over time a nest egg should typically be invested in relatively conservative instruments such as certificates of deposit bonds and dividend paying blue chips the exact allocation of these securities within a nest egg should be based on asset allocation principles as well as the investor s risk tolerance time horizon and investment objectives it would be folly to invest nest egg proceeds in certain volatile investments in hopes of achieving a high rate of return these investments include commodities small cap stocks and currencies since their inherent volatility makes them less suited for conservative investing the importance of a nest eggfor many years a common objective for individuals was to save a nest egg of at least 1 million in order to live comfortably in retirement reaching that sum would in theory allow the individual to sustain themselves on their retirement investment income generated annually based on annual inflation however the ideal size of a nest egg continues to increase as the purchasing power of the dollar diminishes a nest egg should typically be invested in relatively conservative instruments such as certificates of deposit bonds and dividend paying blue chips in addition to cash and securities other assets that are expected to grow in value and generate a positive return on investment over time might make up part of a nest egg prized artwork and other rare collectibles may be held as assets to appreciate and later possibly sold to provide the hard currency for retirement real estate in a prime location that is likewise held in ownership with the expectation of the property value increasing could also be part of a nest egg even if they do not develop the property themselves a landowner might hold on to real estate anticipating its value will increase and that a buyer will offer them the return they seek the proceeds from the sale could then go towards their retirement | |
what is net asset value | net asset value nav is the value of an investment fund that is determined by subtracting its liabilities from its assets the fund s per share nav is then obtained by dividing nav by the number of shares outstanding most commonly used with a mutual fund or unit investment trusts per share nav is the price at which the shares of the funds registered with the u s securities and exchange commission sec trade nav can change on a daily basis therefore per share nav can as well | |
what is net asset value per share navps | net asset value per share navps is an expression for net asset value that represents the value per share of a mutual fund an exchange traded fund etf or a closed end fund it is calculated by dividing the total net asset value of the fund or company by the number of shares outstanding it is also known as book value per share | |
how to calculate net asset value per share navps | net asset value per share navps is calculated by dividing the net asset value by the number of shares outstanding the formula to calculate navps is net asset value per share nav shares outstanding where nav assets liabilities begin aligned text net asset value per share frac text nav text shares outstanding textbf where text nav text assets text liabilities end aligned net asset value per share shares outstandingnav where nav assets liabilities | |
how navps is used | the net asset value per share navps is often used in relation to open end or mutual funds since shares of such funds registered with the u s securities and exchange commission sec are redeemed at their net asset value referring to the formula for net asset value per share navps above assets include the total market value of the fund s investments cash and cash equivalents receivables and accrued income liabilities equal total short term and long term liabilities plus all accrued expenses such as staff salaries utilities and other operational expenses the total number of expenses may be substantial because management expenses distribution and marketing expenses transfer agent fees custodian and audit fees may all be included example of how to use net asset value per share navpsconsider a mutual fund with 7 5 million shares outstanding that has 500 million in investments 15 million in cash 1 5 million in receivables and 250 000 in accrued income as for liabilities the fund has 20 million in short term liabilities and 5 million in long term liabilities the fund has 35 000 of accrued operational expenses and 15 000 of other accrued expenses the assets liabilities and navps are calculated as assets 500 000 000 15 000 000 1 500 000 assets 250 000 516 750 000 liabilities 20 000 000 5 000 000 35 000 liabilities 15 000 25 050 000 navps 516 750 000 25 050 000 7 500 000 491 700 000 7 500 000 65 56 begin aligned text assets 500 000 000 15 000 000 1 500 000 phantom text assets 250 000 516 750 000 text liabilities 20 000 000 5 000 000 35 000 phantom text liabilities 15 000 25 050 000 text navps frac 516 750 000 25 050 000 7 500 000 frac 491 700 000 7 500 000 65 56 end aligned assets assets liabilities liabilities navps 500 000 000 15 000 000 1 500 000 250 000 516 750 000 20 000 000 5 000 000 35 000 15 000 25 050 000 7 500 000 516 750 000 25 050 000 7 500 000 491 700 000 65 56 for mutual funds and etfs the navps is often readily available on sites like morningstar as noted below the market price and navps of etfs may differ for example the market price of the spdr s p 500 etf is 402 63 as of aug 29 2022 while its navps is recorded as 405 24 on morningstar 1the difference between navps and market pricefor a mutual fund the navps is the price at which shares are bought and sold at the end of each trading day exchange traded funds etfs s and closed end funds are different in that they trade as stocks throughout the trading day because these types of funds are subject to market forces their navps at any given time may diverge from the actual buying and selling prices of the funds the navps values of etfs and closed end funds are calculated at the end of the trading day for reporting purposes but are updated many times per minute in real time throughout the trading day limitations of using net asset value per share navpsin the context of corporate financial statements of publicly traded companies the navps or book value per share is usually below the market price per share the historical cost accounting principle which tends to understate certain asset values and the supply and demand forces of the marketplace generally push stock prices above book value per share valuations learn more about net asset value per share navpsfor related insight read more about the difference between an etf s navps and market price | |
what is net cash | net cash is a figure that is reported on a company s financial statements it is calculated by subtracting a company s total liabilities from its total cash the net cash figure is commonly used when evaluating a company s cash flows net cash may also refer to the amount of cash remaining after a transaction has been completed and all associated charges and deductions have been subtracted julie bang investopediaunderstanding net cashsimilar to the current ratio net cash is a measure of a company s liquidity or its ability to quickly meet its financial obligations a company s financial obligations can include standard operating costs payments on debts or investment activities to calculate net cash you must first add up all cash not credit receipts for a period this amount is often referred to as gross cash once totaled cash outflows paid out for obligations and liabilities are deducted from gross cash the difference is net cash | |
when net cash is used in relation to stock investing it sometimes refers to an abbreviated version of the term net cash per share investors can use net cash to help determine whether a company s stock is an attractive investment | net cash vs net cash flownet cash flow refers to either the gain or loss of funds over a period after all debts have been paid when a business has a surplus of cash after paying all its operating costs it is said to have a positive cash flow if the company is paying more for obligations and liabilities than what it earns through operations it is said to have a negative cash flow a negative cash flow does not mean a company is unable to pay all of its obligations it just means that the amount of cash received for that period was insufficient to cover its obligations for that same time period if other savings vehicles are liquidated to meet the obligation or additional debt is accrued that does not involve the receipt of a lump sum deposit then a company can meet all of its obligations while maintaining a negative cash flow analyzing what activities contribute to positive or negative net cash is essential when using net cash as a barometer for determining the financial health of a company positive net cash from events such as increased profits from sales or reduced obligations can be indicative of a healthy and well functioning firm however certain activities may result in a positive cash flow that may not reflect positively on a company s financial health such as money received as a result of incurring a new debt or activities associated with a lump sum loan deposit | |
what does net cash measure | net cash measures a company s liquidity its ability to quickly meet its financial obligations such obligations can include investment activities payments on debts or standard operating costs | |
how does net cash determine a company s financial health | analyzing what activities contribute to positive or negative net cash is essential when using net cash for determining a company s financial health positive net cash can indicate that a business is healthy and functioning well but certain activities may result in a positive cash flow that may not reflect positively on a company s financial health the bottom linenet cash is calculated by subtracting a company s total liabilities from its total cash it is reported on a company s financial statements and is commonly used when evaluating a company s cash flows | |
what is net change | net change is the difference between a prior trading period s closing price and the current trading period s closing price for a given security for stock prices net change is most commonly referring to a daily time frame so the net change can be positive or negative for the given day in question though the net change for stocks and most securities is quoted in u s dollars when reported by financial media the net change can be calculated and quoted in any denomination depending on what is being traded understanding net changetechnical analysts use net change to chart and analyze stock prices over time in line charts for example a stock might close at 10 00 the prior session and 10 25 in the current session which translates to a net change of 0 25 per share many investors also look at the net change in the context of a percentage change to see how significant the movement is relative to the price in most charting platforms net change is automatically adjusted to reflect the impact of dividend distributions or stock splits for example a stock that trades at 60 00 has a 2 for 1 stock split the next day and closes at 30 00 the next session will have a 0 00 net change this makes the charts more usable for gauging the changes in value over time but can create some distortions when looking back at the historical data for example a particular security may not have actually ever traded below 5 per share but adjusted historical charts may show the price down that low there are some instances however when electronic information or historical data may not be updated after being inaccurately reported so it s important for investors to double check that the net change is correct when doing research on historical prices reading stock quotesmany stock market apps and newspapers publish watch lists and stock tables that include the company name ticker symbol volume high low close and net changes for the previous session additional information such as the 52 week high 52 week low dividend yield yield percentage and price earnings ratio may also be included because quotes get retrieved from multiple exchanges stock data may differ slightly technical analysts use electronic stock quotes rather than delayed stock market apps and newspapers since they provide real time information in these cases the net change is typically displayed next to the current price along with the percentage change for example an electronic quote may look something like 163 65 0 45 27 the first number is the last trading price the second number is the net change and the third number is the percentage change point and figure chartsmost stock charts plot a security s closing price over time and optimize around a daily time frame however one form of charting known as point and figure focuses entirely on the aspect of net change without respect to current price time volume or any other factor point and figure charts represent filtered price movements rather than the actual price of a security to show trends point and figure charts contain rising columns of xs and falling columns of os that represent a net uptrend or a net downtrend regardless of the price fluctuation in between the start and end points of these trends since they re based on price change rather than time these charts are ideal for detecting directional patterns and trends in a condensed format rather than looking over a much longer period of time this focus on net change proponents insist creates the opportunity to create price targets that detail where the trend might lead image by sabrina jiang investopedia 2021some other technical indicators also make use of net change in calculating trend strength and other factors that help traders identify potential trading opportunities | |
what is a net charge off nco | a net charge off nco is the dollar amount representing the difference between gross charge offs and any subsequent recoveries of delinquent debt net charge offs refer to the debt owed to a company that is unlikely to be recovered by that company this bad debt often written off and classified as gross charge offs if at a later date some money is recovered on the debt the amount is subtracted from the gross charge offs to compute the net charge off value understanding net charge offs ncos it is highly unlikely that a lender will experience 100 collection on all of its loans outstanding as a routine matter a creditor will establish a loan loss provision an estimate of the amount that it thinks based on historical data will not be repaid and then charge off the amounts that it determines will not come back most often it is the case that loss provisions are in the ballpark of actual gross charge offs but eventual recoveries can occur which when netted against gross charge offs produce a net charge off figure a lender will reduce the loan loss provision by the amount of net charge off during an accounting period and then refill the provision the loan loss provision appears on the income statement as an expense and therefore will lower operating profits the federal reserve bank tracks aggregate net charge off ratios for banks in the u s the ratio is defined as net charge offs divided by average total loans during a period there is also a breakdown among the categories of real estate residential commercial farmland consumer leases commercial and industrial c i and agricultural loans the seasonally adjusted net charge offs to total loans for banks ratio during the first quarter of 2022 was 0 21 1company example of a net charge offcapital one financial corp reported that total net charge offs in 2019 as a percent of average loans outstanding was 2 53 compared to 2 52 in 2018 or an increase of 1 basis point 2 as per accounting rules the bank applied the net charge off amount to the loan loss provision nco amounts shed important information to investors about the credit standards of lenders and may also provide signals about general economic conditions | |
what is net current asset value per share | net current asset value per share ncavps is a measure created by benjamin graham as one means of gauging the attractiveness of a stock a key metric for value investors ncavps is calculated by taking a company s current assets and subtracting total liabilities graham considered preferred stock to be a liability so these are also subtracted this is then divided by the number of shares outstanding ncav is similar to working capital but instead of subtracting current liabilities from current assets total liabilities and preferred stock are subtracted the formula for ncavps is ncavps current assets total liabilities preferred stock shares outstandingunderstanding net current asset value per share ncavps examining industrial companies graham noted that investors typically ignore asset values and focus instead on earnings but graham believed that by comparing the net current asset value per share ncavps with the share price investors could find bargains essentially net current asset value is a company s liquidation value a company s liquidation value is the total worth of all its physical assets such as fixtures equipment inventory and real estate it excludes intangible assets such as intellectual property brand recognition and goodwill if a company were to go out of business and sell all its physical assets the value of these assets would be the company s liquidation value so a stock that is trading below ncavps is allowing an investor to buy a company at less than the value of its current assets and as long as the company has reasonable prospects investors are likely to receive substantially more than they pay for special considerationsin addition to ncavps graham recommended other value investing strategies for identifying undervalued stocks one such strategy defensive stock investing means the investor will purchase stocks that provide stable earnings and dividends regardless of what is going on in the overall stock market and economy these defensive stocks are especially appealing because they protect the investor during times of recession giving the investor a cushion to weather downturns in the markets examples of defensive stocks can often be found in the consumer staples utilities and healthcare sectors these stocks tend to do better during a recession because they are non cyclical meaning they are not highly correlated with the business and economic cycles the bottom lineaccording to graham investors will benefit greatly if they invest in companies where the stock prices are no more than 67 of their ncav per share 1however graham made it clear that not all stocks chosen using the ncavps formula would have strong returns and that investors should also diversify their holdings when using this strategy graham recommended holding at least 30 stocks | |
what is net debt | net debt is a liquidity metric that s used to determine how well a company can pay all its debts if they come due immediately net debt shows how much debt a company has on its balance sheet compared to its liquid assets it shows how much cash would remain if all debts were paid off and if a company has sufficient liquidity to meet its debt obligations investopedia mira noriannet debt formula and calculationanalysts and investors will look at the net debt of a company to determine its financial stability it can be found using this formula and calculation net debt std ltd cce where std debt that is due in 12 months or less and can include short term bank loans accounts payable and lease payments ltd long term debt is debt that with a maturity date longer than one year and include bonds lease payments term loans small and notes payable cce cash and liquid instruments that can be easily converted to cash cash equivalents are liquid investments with a maturity of 90 days or less and include certificates of deposit treasury bills and commercial paper begin aligned text net debt text std text ltd text cce textbf where begin aligned text std text debt that is due in 12 months or less text and can include short term bank text loans accounts payable and lease text payments end aligned begin aligned text ltd text long term debt is debt that with a text maturity date longer than one year text and include bonds lease payments text term loans small and notes payable end aligned begin aligned text cce text cash and liquid instruments that can be text easily converted to cash end aligned text cash equivalents are liquid investments with a text maturity of 90 days or less and include text certificates of deposit treasury bills and text commercial paper end aligned net debt std ltd ccewhere std debt that is due in 12 months or less and can include short term bank loans accounts payable and lease payments ltd long term debt is debt that with a maturity date longer than one year and include bonds lease payments term loans small and notes payable cce cash and liquid instruments that can be easily converted to cash cash equivalents are liquid investments with amaturity of 90 days or less and includecertificates of deposit treasury bills andcommercial paper | |
what is net debt per capita | net debt per capita is a measurement of the value of a government s debt expressed in terms of the amount attributable to each citizen under the government s jurisdiction the level of net debt per capita can be a factor to consider when analyzing a government s ability to continue to pay its debt service costs through its current levels of tax revenue understanding net debt per capitanet debt per capita is how much debt a government has per citizen it is most often calculated at the national level but it can also be applied to state and city governments this number is sometimes used to help evaluate the default risk of a government s bonds as well as to assess its overall economic health net debt per capita is a simple calculation to perform the formula is net debt per capita short term debt long term debt cash cash equivalents populationfor example if a country with a population of 300 million people has a total debt of 950 billion and cash of 20 billion its net debt per capita is net debt per capita 950 billion 20 billion 300 million 3 100these numbers can usually be obtained without the effort of gathering the data and calculating it many public sources and economic think tanks regularly publish the figures the u s national debt at the start of 2024 the figure is updated daily on the u s treasury site ten years earlier it was 22 99 trillion 1theoretically the net debt per capital number means that each taxpayer would have to pay the government 3 100 if it had to pay off its debt in full this is assuming of course that every citizen became liable for the outstanding debt of the country which wouldn t happen in practice net debt per capita is simply an indicator by which to measure a country s financial health rather than an actual approximation of individual liability significance of net debt per capitanet debt per capita is more commonly used for political statements than as an economic indicator in and of itself expressing the national debt in terms of a citizen s share makes it more real and relevant as of jan 6 2024 the net debt per capita of the united states is 102 409 countries with higher net debt per capita include the united kingdom and the netherlands japan has a relatively light debt load these figures are generally used in domestic politics to push for some change in fiscal policy that said net debt per capita may be plotted against per capita gdp to compare several regions around the world to determine the most promising areas to invest in internationally however the debt to gdp ratio is more commonly used for this purpose as it simplifies two data sets into a single plotted line for each country this makes visualization and comparison much easier | |
what is the national debt per capita of the u s | the national debt of the u s is about 34 trillion as of the start of 2024 1the population of the u s is about 332 million that makes the national debt per capita of all americans about 102 409 | |
why is the u s national debt rising so rapidly | the u s national debt stands at about 34 trillion as of early 2024 ten years earlier it was 22 99 trillion at the start of 2024 the figure is updated daily on the u s treasury site ten years earlier it was 22 99 trillion much of the increase can be attributed to the coronavirus pandemic and the enormous amounts of government money spent by both president donald trump and president joe biden to stabilize the american economy and help citizens through the crisis 2 | |
does any country not have national debt | yes several nations have little or no debt they include the bottom linenational debt per capita is largely a political talking point it helps communicate a government s level of indebtedness so that its citizens can understand it more fully theoretically every man woman and child in the u s would have to pay the u s government 102 409 to wipe out the national debt practically speaking that s not going to happen | |
what is the net debt to ebitda ratio | the net debt to ebitda earnings before interest depreciation and amortization ratio is a measurement of leverage calculated as a company s interest bearing liabilities minus cash or cash equivalents divided by its ebitda the net debt to ebitda ratio is a debt ratio that shows how many years it would take for a company to pay back its debt if net debt and ebitda are held constant however if a company has more cash than debt the ratio can be negative it is similar to the debt ebitda ratio but net debt subtracts cash and cash equivalents while the standard ratio does not the formula for net debt to ebitda is n e t d e b t t o e b i t d a t o t a l d e b t c a s h e q u i v a l e n t s e b i t d a net debt to ebitda frac total debt cash equivalents ebitda net debt to ebitda ebitdatotal debt cash equivalents investopedia julie bang | |
what net debt to ebitda can tell you | the net debt to ebitda ratio is popular with analysts because it takes into account a company s ability to decrease its debt ratios higher than 4 or 5 typically set off alarm bells because this indicates that a company is less likely to be able to handle its debt burden and thus is less likely to be able to take on the additional debt required to grow the business the net debt to ebitda ratio should be compared with that of a benchmark or the industry average to determine the creditworthiness of a company additionally a horizontal analysis could be conducted to determine whether a company has increased or decreased its debt burden over a specified period for horizontal analysis ratios or items in the financial statement are compared with those of previous periods to determine how the company has grown over the specified time frame example of how to use net debt to ebitdasuppose an investor wishes to conduct horizontal analysis on company abc to determine its ability to pay off its debt for its previous fiscal year company abc s short term debt was 6 31 billion long term debt was 28 99 billion and cash holdings were 13 84 billion therefore company abc reported a net debt of 21 46 billion or 6 31 billion plus 28 99 billion less 13 84 billion and an ebitda of 60 60 billion during the fiscal period consequently company abc s net debt to ebitda ratio is 0 35 or 21 46 billion divided by 60 60 billion now for the most recent fiscal year company abc had short term debt of 8 50 billion long term debt of 53 46 billion and 21 12 billion in cash the company s net debt increased by 90 31 to 40 84 billion year over year company abc reported an ebitda of 77 89 billion a 28 53 increase from its ebitda the previous year therefore company abc had a net debt to ebitda ratio of 0 52 or 40 84 billion divided by 77 89 billion company abc s net debt to ebitda ratio increased by 0 17 or 49 81 year over year limitations of using net debt to ebitdaanalysts like the net debt ebitda ratio because it is easy to calculate debt figures can be found on the balance sheet and ebitda can be calculated from the income statement the issue however is that it may not provide the most accurate measure of earnings more than earnings analysts want to gauge the amount of cash available for debt repayment depreciation and amortization are non cash expenses that do not really impact cash flows but interest can be a significant expense for some companies banks and investors looking at the current debt ebitda ratio to gain insight on how well the company can pay for its debt may want to consider the impact of interest on the debt even if that debt will be included in new issuance in this way net income minus capital expenditures plus depreciation and amortization may be the better measure of cash available for debt repayment | |
what is net domestic product ndp | net domestic product ndp is an annual measure of the economic output of a nation that is calculated by subtracting depreciation from gross domestic product gdp | |
how net domestic product ndp works | ndp accounts for capital that has been consumed over the year in the form of housing vehicle or machinery deterioration the depreciation accounted for is often referred to as capital consumption allowance and represents the amount needed to replace those depreciated assets the frequency and scope of such replacements can vary by type of capital assets machinery that is put to regular use may need parts replaced regularly until the entire piece of equipment is no longer usable while that may take many years barring unexpected damage or defects there is a cycle of equipment failure and replacement part of the machinery in a factory s production line may need to be replaced while another set of similar machines continues to function within the same factory the acquisition of the replacement machinery would be factored into the depreciation aspect of the npi this differs from an expansion of factory operations for example the opening of a new site adding to the total number of factories the acquisition of new machines for the new factory would represent a gain because the demand was driven by the need to increase the scope of the operations rather than serve as a replacement this would mean the purchased machine would qualify as a gain for the ndp the construction of new homes on previously unused real estate can also represent a gain for the ndp if the residences are not intended to replace defunct or demolished property for example in many urban areas efforts may be made to re purpose underutilized real estate that has fallen into disrepair instead of expanding the sprawl of the city older buildings might be torn down and replaced by new construction intended to fill the same use as the predecessor building such an example would qualify as depreciation and replacement by contrast if a new housing community is developed the construction of residences would be contributory to ndp an increase in ndp signifies a growing economy while a decrease denotes economic stagnation special considerationsndp along with gdp gross national income gni disposable income and personal income is one of the key gauges of economic growth that is reported on a quarterly basis by the bureau of economic analysis bea though gdp is frequently cited when assessing the economic health of a country ndp puts into perspective the pace at which capital assets degrade and must be replaced this is important as failure to take action would result in a decrease in the country s gdp | |
what are net exports | net exports are a measure of a nation s total trade the formula for net exports is a simple one the value of a nation s total export goods and services minus the value of all the goods and services it imports equals its net exports a nation that has positive net exports enjoys a trade surplus while negative net exports indicate that the nation has a trade deficit a nation s net exports are thus a component of its overall balance of trade understanding net exportsa country that enjoys net exports brings in more money from goods and services sold overseas than it spends on importing goods and services exports include all the goods and other services a country sends to the rest of the world including merchandise freight transportation tourism communication and financial services companies export products and services for a variety of reasons exports can increase sales and profits if the goods create new markets or expand existing ones at best they present an opportunity to capture significant global market share companies that export also spread business risk by diversifying into multiple markets exporting into foreign markets also reduces per unit costs by expanding operations to meet increased demand finally companies that export to foreign markets gain new knowledge and experience that may lead to the discovery of new technologies and marketing practices and insights into foreign competitors if a nation s currency is weak in relation to other currencies the goods available for export become more competitive in international markets as their prices are relatively less expensive to the retail customer that encourages positive net exports if a country s currency is strong its exports are more expensive consumers will pass them up for cheaper local products which can lead to negative net exports formula and calculation of net exportsthe formula for determining a nation s net export number is a simple one net exports value of total exports value of total importsthe details are more complicated the u s census bureau for example tracks the nation s exports and imports of industrial supplies and materials capital goods consumer goods food automotives and automotive parts and more it also tracks the numbers by trading partner the u s has its biggest trade deficit not surprisingly with china and that deficit increased by 31 6 billion in 2022 to 382 9 billion 1the u s trade deficit as a percentage of gdp for 2022 that is a slight increase from 3 6 of gdp in 2021 1net exporter vs net importercountries produce goods based on the resources and skilled labor capacity that they have available when a country cannot produce a particular product efficiently but still wants or needs it its businesses can buy it from other countries that produce and export it a net exporter is a country that sells more goods to foreign countries than it brings in from abroad saudi arabia and canada are examples of net exporting countries both have an abundance of oil which they sell to businesses in other countries that need it a net exporter by definition runs a current account surplus in aggregate a net importer by contrast is a country or territory whose value of imported goods and services is higher than its exported goods and services over a given period of time by definition a net importer runs a current account deficit the united states is a net importer purchasing many of its consumer products and raw materials from countries like china and india because those nations can produce them more cheaply a country may run either deficits or surpluses with individual countries or territories depending on the types of goods and services that it buys and sells the competitiveness of these goods and services current exchange rates levels of government spending and trade barriers a country can be a net exporter of some categories of goods while being a net importer of other products for example japan is a net exporter of electronic devices but it must import oil from other countries to meet its needs some economists believe that running a consistent trade deficit harms a nation s economy by giving domestic producers an incentive to relocate overseas creating pressure to devalue the nation s currency and forcing its interest rates lower yet the united states has both the world s largest deficit and its largest gross domestic product gdp that suggests that running a trade deficit is not always detrimental the world s most prolific exportersaccording to world bank data the most prolific exporter by the percentage of gross domestic product gdp in 2021 for which the latest data is available was luxembourg at 211 4 if you don t recall buying any products made in luxembourg lately you should know that its main trading partners are germany france and belgium and it exports many products including steel and machinery diamonds chemicals and food 2other leading export countries in recent years include the countries that exported the least as a share of gdp in 2020 included burundi at 5 sudan at 2 3 guam at 3 and nepal at 5 2 2examples of countries with net export deficits and surplusesto find examples of how nations calculate net exports we first have to see the world bank data on the imports side for the same year for example ireland s imports came in at 95 as a percentage of gdp in 2021 while luxembourg s imports totaled 176 7 by subtracting those figures from the exports of these nations we find that ireland had net exports of 39 4 in 2019 while luxembourg enjoyed net exports of 34 7 3for 2021 the latest year in the world bank s report the u s had net exports totaling 10 9 of gdp while it had net imports of 14 6 of gdp the u s had a trade deficit of 3 7 of gdp separately u s census bureau figures set the u s deficit at 3 7 in 2021 and 3 8 in 2022 factors influencing net exportsfor a country to be a net exporter it must have products or raw materials that overseas buyers desire and the capacity to deliver them at a cost that is low enough to entice foreign consumers to import them rather than buying a domestic alternative a country exports when it has a comparative advantage in a product or an ability to produce a particular product or service at a lower opportunity cost than its trading partners some countries enjoy an absolute advantage in certain products particularly in raw materials or natural resources these will be in high demand as exports saudi arabia has a natural advantage in its oil reserves the u s is rich in coal and timber among other resources china is rich in rare earth minerals a country s currency exchange rate also plays an important role if a currency loses value relative to its potential trading partners its companies can produce and sell those goods abroad relatively cheaply the reverse is true if the nation s currency value rises because of this a country s government or central bank of an exporting country may employ monetary policy tools if the currency starts to rise in global markets a third important factor is the government s export tax policies trade barriers such as quotas tariffs and other taxes are designed to stifle international trade and encourage domestic production a trade barrier is any government regulation that is designed to protect domestic products from foreign competition or artificially stimulate exports of particular domestic products the most common foreign trade barriers are government policies that restrict prevent or impede the international exchange of goods and services the greater the trade barriers both at home and internationally the harder it is to export net exports and gdpthe net exports number is a key component of a nation s gdp it either adds to gdp if it is a positive number or decreases its gdp if it is a negative number a high gdp or at least a gdp that is growing from year to year is seen as an indicator of a nation s economic health a negative net exports number detracts from that number that does not by any means end the debate over whether a trade deficit is a bad mark against a nation s economy one way to look at a trade deficit is to see it as an indication that a nation s citizens can consume more than they produce they have the money to buy the goods and services that they cannot produce themselves on the other side there is a political hazard ahead for nations running big deficits the nation is sending its money abroad and leaving itself vulnerable to economic colonization | |
what is meant by net exports | net exports are the total value of a nation s exported goods and services that exceeds the total of its imported goods and services | |
how do you calculate net exports | for a given period net exports total exports total imports | |
what are examples of nations that have net exports | examples are many saudi arabia for instance is a net exporter largely because of its exports of crude oil australia is a net exporter mostly because it is rich in metals and ore | |
why are net exports included in gdp | gross domestic product gdp is a measure of an economy s size that accounts for the value of all goods produced within a nation s borders over the course of a year products that are made or sourced domestically but sold in other countries make up one component of a nation s economy | |
is the u s a net exporter | no the u s is historically a net importer and runs a standing trade deficit the data is tracked and reported on a monthly basis by the u s census bureau its report for all of 2022 indicates that the goods and services deficit increased 103 billion or 12 2 from the previous year exports increased by 453 1 billion or 17 7 while imports increased by 556 1 billion or 16 3 overall the u s trade deficit was 948 1 billion up 103 billion from 2021 overall the u s had a trade deficit of 3 7 of gdp for 2022 up slightly from 3 6 in 2021 1the bottom linethe net exports number is a component of a nation s gdp if a nation has a trade surplus it adds to the gdp if it has a trade deficit this reduces gdp this number is also referred to as the balance of trade the term can be taken literally as it suggests the health of the nation s economy as a whole the nation produces and exports the goods and services that it can supply to the world on a competitive basis it consumes some of the goods and services it produces and imports those it cannot produce some of both are critically important but the appropriate mix is harder to establish | |
what is net exposure | net exposure is the difference between a hedge fund s long positions and its short positions expressed as a percentage this number is a measure of the extent to which a fund s trading book is exposed to market fluctuations net exposure can be contrasted with a fund s gross exposure which does not offset long and short positions net exposure is therefore often a more accurate measure of a fund s amount at risk understanding net exposurenet exposure reflects the difference between the two types of positions held in a hedge fund s portfolio if 60 of a fund is long and 40 is short for example the fund s gross exposure is 100 60 40 and its net exposure is 20 60 40 assuming the fund uses no leverage more on that below the gross exposure refers to the absolute level of a fund s investments or the sum of long positions and short positions a fund has a net long exposure if the percentage amount invested in long positions exceeds the percentage amount invested in short positions and has a net short position if short positions exceed long positions if the percentage invested in long positions equals the amount invested in short positions the net exposure is zero a hedge fund manager will adjust the net exposure following their investment outlook bullish bearish or neutral being net long reflects a bullish strategy being net short a bearish one net exposure of 0 meanwhile is a market neutral strategy gross exposure vs net exposureto say a fund has a net long exposure of 20 as in our example above could refer to any combination of long and short positions as an example consider a low net exposure does not necessarily indicate a low level of risk since the fund may have a significant deal of leverage for this reason gross exposure long exposure short exposure should also be considered gross exposure indicates the percentage of the fund s assets that have been deployed and whether leverage borrowed funds is being used if gross exposure exceeds 100 it means the fund is using leverage or borrowing money to amplify returns the two measures together provide a better indication of a fund s overall exposure a fund with a net long exposure of 20 and a gross exposure of 100 is fully invested such a fund would have a lower level of risk than a fund with a net long exposure of 20 and a gross exposure of 180 since the latter has a substantial degree of leverage net exposure and riskwhile a lower level of net exposure does decrease the risk of the fund s portfolio being affected by market fluctuations this risk also depends on the sectors and markets that constitute the fund s long and short positions ideally a fund s long positions should appreciate while its short positions should decline in value thus enabling both the long and the short positions to be closed at a profit even if both the long and short positions move up or down together in the case of a broad market advance or decline respectively the fund may still make a profit on its overall portfolio depending on the degree of its net exposure for example a net short fund should do better in a down market because its short positions exceed the long ones during a broad market decline it is expected that the returns on the short positions will exceed the losses on the long positions however if the long positions decline in value while the short positions increase in value the fund may find itself taking a loss the magnitude of which will again depend on its net exposure measures fund manager s expertise performanceindicates fund s vulnerability to volatility |
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