What is a name?
A denomination is a classification of the declared or nominal value of financial instruments such as banknotes, coins, as well as bonds and other fixed income investments.
The name can also be the base currency in a transaction or the currency quoted in a financial asset. This classification of the term makes it possible to clarify the acceptable payment options in transactions, for example by indicating bonds denominated in dollars issued by a foreign government.
Nomenclature of names
Most often, a denomination is a unit of value given to physical currencies such as coins and notes, and to other financial instruments that maintain fixed values, such as bonds issued by the government. The nominal value is often called “nominal value” because it appears on the front or the front of the financial instrument.
Nomenclature is the act of applying a name to an item, and many currencies carry not only the official title but also a nickname. For example, the Canadian dollar (CAD) is nicknamed the loon because it has the image of a loon on one side. The US $ 100 bill is known as Benjamin because it bears the image of Benjamin Franklin.
In the United States, banknotes distributed by most automatic teller machines (ATMs) are only available in certain denominations. For example, some ATMs offer $ 20 bills and $ 100 bills, while others can provide $ 10 and $ 50 bills. In a business transaction, an exporter based in Europe can invoice the buyer in US dollars, making the transaction denominated in US dollars. While most commodities were quoted in dollars, as of 2020, commodities such as crude oil could receive quotes in other currencies, such as the euro.
Key points to remember
- A denomination classifies a nominal value and units of measure of a financial instrument such as money or bonds.
- Often, the denomination will refer to the nominal value of the instrument.
- Bond denominations are based on the nominal value of the bond.
- Collection coins will sometimes have a market value greater than the nominal value.
Nominal values as denominations
The face value of a bond or other fixed income investment is equal to the face value of the bond, which is the amount paid at maturity. Bonds can be purchased in a variety of denominations, ranging from $ 50 to $ 10,000. When buying a mutual bond, it is sold for an amount less than the nominal value because the difference between the sale price and the value at maturity fulfills a function similar to the interest earned in other investment vehicles .
The nominal value, also called nominal value, of the securities can also represent its nominal value. However, this may be an inaccurate assessment of the importance of the security in the market. The nominal value represents a minimum value for operation. When registering shares, companies can display the face value at zero or one cent. This price allows them to avoid the legal responsibilities to which they could be exposed if they listed the shares at a higher price.
Example from the real world
Some individual coins have a retail market value greater than their associated face value. These currencies are collectible and sought after by amateurs and those looking for an alternative investment. For example, some American neighborhoods produced between 1932 and 1964 contained 90% silver. Therefore, although the face value maintains its value at 25 cents, the market value may be higher, depending on the price of silver, the fusion value of silver, the condition of a coin. specific date and currency. This difference between the denomination and the fusion value ultimately led to a change in the materials used to produce the quarters.