Terms Beginning With 'n'


  • January 02, 2020
  • Team Kalkine

Negotiable is generally referred to as the unsettled price of a good or security, or a condition or provision or term in a contract or an agreement that is not resolute between the parties and has room for adjustment.

What are Real Assets? Real assets are defined as economic resources that provide the holder with a consumption right. Also, real assets are mainly physical assets with intrinsic value due to its consumption rights rather than the financial properties. Natural resources and land are two institutional-quality real assets, which include commodities, precious metals, real estate, etc. All consumption ultimately originates from real assets, and as compared to its counterpart, i.e., financial assets, real assets provide a holder with a right to consume rather than serving as conduits of value. What are the types of Real Assets? Natural Resources Natural resources can be defined as a type of real assets which focus on direct ownership and have received minimal or no human alteration. Examples of natural resources include mineral and energy reserves. Commodities Commodities are a type of natural resources; however, it differs from them for being extracted and can be defined as homogeneous goods such as metals, agricultural products. Real Estates Real estates are defined as improvements on lands that are permanently affixed. Land The land is a type of real assets which comes in a variety of forms including undeveloped land, timberland, and farmland. While land might appear to belong to natural resources, it is not, as the option to develop it often requires a considerable managerial decision. Timberland includes both the land and the timber of forests tree. Likewise, farmland consists of both the land and the product cultivated. Institutional Quality Real Assets Natural Resources Examples of natural resources include oil, coal, ore, water, and any other inputs to production that largely remain in the natural state. As natural resources are under the surface; landowners and the government conjointly hold the rights for any manipulation to the land containing natural resources. Ideally, in many jurisdictions, landowners typically have surface rights, and the government holds the underground rights. Development of Natural Resources as Exchange Options Considering natural resource as an option to develop commodities or any other real assets widen the analysis of natural resources. Ideally, a developer of natural resources, mainly mining companies expend money to develop the natural resource at the land into a commodity. The process of developing commodities from natural resources include using mineral rights with other inputs such as labour, materials, fuel, and management. Thus, the development of natural resource into commodities is usually seen as an exchange option, i.e., an option to exchange one risky asset for another. Generally, mining companies exchange mineral rights and other inputs for output. Therefore, the development of a natural resource into commodities is a function of several factors as below: The volatility of the price of the asset (inputs). The volatility of the price being received. The correlation between the prices of inputs and the prices of output. The overall moneyness of the development process, i.e., the ratio of the developed value to the development cost. Ideally, the ratio of the developed value to the development greater than one is considered as a point to execute the exchange option of the natural resource. Land Any land which is raw, undeveloped and is not generating substantial food, resource, shelter, or recreation is an option just like natural resources. Investment in undeveloped land is an option similar to natural resources exchange options with the strike price of the cost of developing the land with an unlimited expiry. Valuation and Volatility of Real Assets Unlike financial assets, real assets often do not have observable market values; thus, they are valued by appraisals, which leads to smoothing on its return and price volatility. Appraisals – A Method to Value Real Assets Appraisals are defined as professional opinions concerning the value of a real asset. The appraised value of a real asset, especially real estates, is based on two methods, i.e., Discounted Cash-flow and Comparable Sales. Comparable sales method is ideally used for real assets having no income, and the method includes collecting data on prices of real assets with comparable properties with an economic value that has traded in the recent past. For real assets with regular income, alternative analysts/fund managers generally use the DCF method, i.e., a method of finding the present value of the expected future cash flow at a discount rate. However, one pitfall with appraisal valuation method is that it tends to smooth the data that can mask the true risk of an underlying real asset. What is Smoothing? Ideally, smoothing is defined as the reduction in the reported dispersion in a price series. A valuation by appraisal often leads to smoothing, which, in turn, can mask the risk of real assets. For example, assume that an investor buys two risk-free instruments, say a one-year T-bill and a one-year certificate of deposit (CD). Now let us assume that both the investments offer the same risk-free cash flow in one year. However, let’s assume that the one-year CD is non-negotiable with a large withdrawal penalty. Does the risk of both the instruments match? The answer is no, obviously as the investor has to pay the penalty for liquidating the CD, it has more risk as compared to the other instrument. Thus, the method of reporting the values of both instruments may vary. Generally, the market price of T-bills varies or fluctuate as interest rate shifts, and ideally, as both instruments are correlated to interest rate, the CD should also fluctuate as much as a T-bill over the change in the prevailing interest rate. However, despite that many financial statements demonstrate a very stable value that accrues slowly at the CD’s coupon rate while ignoring the impact of interest rate on CDs for accounting simplification. Over the period of time, this accounting simplification causes a smoothed reported price series relative to the economic value; thus, an investor observing this price series might wrongly perceive that CD is less risky as its volatility is masked. Likewise, the true value of a portfolio could also be smoothed to mask its volatility. For example, an asset manager can buy out-of-the-money (OTM) puts while simultaneously writing-off OTM calls, allowing him to cap the upper and the lower range of returns, resulting into lower than the reported volatility. What are the Advantages and Disadvantage of Real Assets? The major advantage of real assets is the diversification benefit and their small correlation with macroeconomic factors such as inflation, currency fluctuations, as compared to the financial assets. However, real assets tend to have lower liquidity and ideal valuation methods used to value financial assets might not give a true picture of the intrinsic value of a real asset. Also, the price data of real assets are not easily available, and the market structure is relatively more complex as compared to the financial market.

A linked savings account is a type of savings account that is linked to a different account, for instance negotiable order of withdrawal (NOW), by its account number. By holding a linked savings account, the customer can keep most of the funds in the savings account and as per requirement can transfer money over into the demand account.

The Order Paper which is also known as Order of Business is a daily publication in the Westminster system of government which records the business of parliament for that day's sitting. It gives the details such as where is select and standing committee is meeting and the agenda of day. A order paper can also be defined as negotiable instrument which is payable to the assignee or specific person

How Can you Define Forex Trading? The act of transfer of currency between buyers and sellers at an agreed price is termed as forex trading. The means by which companies, central banks and individuals exchange one currency for the other is defined as foreign exchange or forex. Unlike commodities or shares, forex trading is not undertaken on exchanges but directly between buyers and sellers of foreign currencies in foreign exchange market. A large amount of currency is converted every day in the forex market, which makes the price of these currencies extremely volatile. This price volatility makes the forex market more attractive to traders, strengthening the chances of earning high profits via trading. However, it also brings a risk of amplified losses with it. Must Read: A Beginner’s Guide to Forex Trading Why is Forex Trading Done? Forex trading is majorly done to earn profits from variations in the value of a currency. It is a well-known fact that values of currencies keep on changing due to different political and economic factors, including inflation, the balance of payments and interest rate variations. The movement in the price of currencies makes it attractive for forex traders to take positions in the forex market. Some of the benefits associated with forex trading are outlined below: It provides a base for overseas trade, enabling importers and exporters to convert currencies and conduct global business efficiently. Exporters often use the forex market to hedge their positions and safeguard their interests by locking the exchange rate at the time of receiving orders from other countries. Central banks use the forex market to weaken or strengthen the domestic currency and ensure the smooth operation of the economy. It helps to speculate the relative strength of major and minor economies across the world. Interesting Read: Discover the Influence of Economic Factors on Forex Trading Who are the Key Forex Trading Participants in the Forex Market? Forex trading is conducted by a range of participants dispersed across the globe, with a different set of motives. Below is the list of some key participants in the forex market: Central Banks: Central banks indulge in forex trading, primarily to regulate the movement of national currencies to maintain trade balance and prevent economic Typically, central banks use indirect means to control currency prices, such as raising or lowering interest rates or conducting open market operations. Commercial Banks: Forex trading is one of the major business activities of commercial banks, which purchase and sell currencies as part of their standard financial services offered to bank customers or retail clients. International Companies: MNCs or international companies trade in the forex market to exchange cash flows connected with their overseas operations. Brokers: Brokers act as a bridge between the buyers and suppliers of foreign exchange in return for a commission or a fee. Brokers do not commit capital and thus do not face the risk of holding a stock of currency balances amid exchange rate Retail Traders: Individuals who trade their own funds in the forex market to make a profit are categorized under retail traders. Over the last few years, retail traders have become one of the fastest-growing participants in the forex market. What are the Different Characteristics of the Forex Market? What’s more fascinating about the forex market is that it is the largest financial market in the world, with a daily turnover of over USD 5 trillion. The forex market has established its global presence, backed by its unique characteristics encompassing liquidity, transparency, and strong market trends. With that said, let us quickly scroll through some of the exciting features of the foreign exchange market: It is the most liquid market amongst the other financial markets. There is no central marketplace to conduct currency exchange in the forex market. It is an over the counter market, de-centralized market. The foreign exchange market is open 24/7 but five days a week, and all major currencies are traded at key financial centres. It offers greater price transparency, which has further improved with the evolution of online forex trading. The market comprised of an international network of dealers, including investment banks and commercial banks. By far, the US dollar is the most traded currency on the forex market. What are the Three Different Types of Forex Market? The forex market can be broadly categorized into three kinds: spot market, forward market and future market. Spot Market: The spot market offers immediate payment to buyers and sellers of currencies as per the existing exchange rate. In this market, the trade is settled on the spot with a physical exchange of currency pair. Major participants in the spot market include central banks, commercial banks, brokers, dealers, speculators, and arbitrageurs. Forward Market: In this market, two parties decide to conduct a trade at some specific future date, at a stated quantity and price. There is no need for a security deposit in such market as no money changes hands at the time the deal is signed. Major participants in the forward market include government nodal agencies, companies, and individuals. Future Market: This market involves buying and selling of a specific currency at a future date at a fixed price via standardized contracts. These contracts include a settlement period, a standard size and are non-negotiable. This market is highly liquid relative to the forward one as unlimited individuals or participants can enter into the same trade. What are the Risks Associated with Forex Trading? Undoubtedly, trading in forex market comes with a risk. In this context, let us highlight key risks one needs to take into account while actively trading in the forex market: Risk resulting from changes in the value of the currency. Possibility that an unsettled currency position may not be repaid as decided, owing to an involuntary or voluntary action by a counterparty. Risk of not receiving funds from a failed bank. Settlement risk occurring due to variations in time zones of different countries. Leverage risks in volatile market conditions due to the aggressive use of financial leverage. One needs to have an appropriate risk management plan in place to minimize the risks involved in forex trading. Don’t forget, Warren Buffett’s famous quote, “Risk comes from not knowing what you’re doing.”

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