Have you come across the term nominal value, but do not know exactly what it means, why it is used and where to find it? Read this article and you will learn everything you need.
Definition of nominal value
Nominal value is a monetary value assigned to a specific asset component (coins and banknotes, stamps and vouchers, receivables and liabilities). It is usually stated directly on money and stamps or vouchers.
Taken from Wikipedia
The nominal or face value expresses the price stated on the mentioned asset components at the time of their issue. Why is this term used at all? It is necessary to distinguish it from the real or market value. The nominal value remains unchanged over time, whereas the market value, as the name suggests, depends on the market situation.
Nominal value of money
The nominal value of a coin or banknote is stamped or printed on the given currency. Coins and banknotes remain the same for many years, but their real value changes, usually in connection with inflation/deflation and the purchasing power of money.
For example, the nominal value of a ten-crown coin has been the same for many years, it is about 0.46 USD. However, its purchasing power changes, meaning what we can buy with it. In the past, we could buy 10 bread rolls with it; today we can barely buy five. Even though its purchasing power has changed, it is still the same metal coin.
Nominal value of a share
Securities also have their nominal and real value. A share is a security, and whoever buys it invests their financial resources into a joint-stock company. The nominal value of a share is the price of the share stated directly on the given share at the time of its issue. Shares are traded on the stock exchange at their real market value, which primarily reflects demand.
Are you thinking about starting to earn money by buying and selling shares? There are other ways to create passive income as well.
Nominal value of a bond
A bond is also a security, representing a loan to a company, the state or another entity. It obliges the issuer of the bond to pay the person who bought the bond the nominal value of the bond plus interest. So with bonds it is similar to shares, the nominal value of a bond is the price stated on the bond at the time of issue. Bonds are also traded, which is why their market price is different, as it depends on the aforementioned interest rate and the time of purchase.
If you are considering buying bonds, you can learn more about how their real value is expressed on the website Patria.cz.
Nominal value of a promissory note
A promissory note is a security that obliges the debtor to pay their creditor a specified financial amount by an agreed date. The nominal value of a promissory note is stated directly on the promissory note. If the creditor does not want to wait until the agreed date arrives, they can transfer the promissory note to someone else. The real price of a promissory note is therefore usually lower.
TIP: Do you need to borrow money? Read about how to choose the most advantageous loan.
Nominal wage
You may also come across the term nominal wage. What exactly is it? If you receive a wage of about 920 USD and your employer increases it to about 950 USD, it increases nominally. If there were zero inflation in that year, your real wage would also increase. If there is 3% inflation, your real wage does not change. Due to the rise in prices, you can buy the same amount of goods for the higher wage as before.
Do you manage your finances well? If you struggle with them, read something about financial literacy.