Nominal vs. Notional — What's the Difference?
By Tayyaba Rehman & Fiza Rafique — Updated on May 2, 2024
Nominal values refer to stated or face values, unchanged by market conditions, while notional values represent hypothetical or underlying amounts used in finance calculations.
Difference Between Nominal and Notional
Table of Contents
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Key Differences
Nominal values are often used to denote the face value of financial instruments, such as bonds, which remains constant over time. On the other hand, notional values are theoretical and are used to calculate payments or returns on derivative contracts, where they reflect the total amount of assets controlled.
Nominal GDP, for instance, measures a country's economic output based on current prices, without adjusting for inflation. Whereas, notional amounts are crucial in leveraged markets, like futures or swaps, indicating the volume of assets that the financial instruments represent, rather than the money actually exchanged.
In terms of accounting, nominal accounts relate to revenues, expenses, and profit or loss and are reset at the end of each accounting period. While, notional values do not appear directly in financial statements but influence the market risk and credit risk assessments.
Nominal interest rates are the rates quoted by financial institutions, not reflecting inflation or the real cost of borrowing. Conversely, notional interest rates could refer to the effective rates used in the computation of interest on derivative instruments like interest rate swaps.
In daily usage, nominal can describe anything in name only, or minimal in comparison to what's typical. On the other hand, notional can imply something conceptual or existing in theory, often used when discussing plans or ideas that have not yet been put into action.
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Comparison Chart
Definition
Stated value, unchanged by market
Hypothetical or theoretical value
Use in Finance
Face value of bonds
Underlying value in derivatives
Economic Indicators
Nominal GDP (current prices)
Used in theoretical finance models
Interest Rates
Quoted rate not adjusted for inflation
Effective rate in complex financial products
General Usage
In name only, minimal
Conceptual, theoretical
Compare with Definitions
Nominal
Relating to a stated value not adjusted for inflation.
The nominal fee for the event is $50, but the real cost is much higher.
Notional
Suggesting or conveying an idea.
The novel was based on a notional world where magic was common.
Nominal
Of, relating to, or constituting a name.
The children bore the nominal surname of their stepfather.
Notional
Imaginary or hypothetical.
He spent the day trading stocks with a notional budget of $100,000.
Nominal
Very small; far below the real value or cost.
He's working for a nominal salary, practically a volunteer.
Notional
Existing only in theory or as a suggestion or idea.
They discussed several notional plans for the new product.
Nominal
Being such in name only;
The nominal (or titular) head of his party
Notional
Used to indicate the underlying value of a financial derivative.
The notional value of the swap contract was over $1 million.
Nominal
(Accounting) Relating to an account that lists revenues and expenses.
The profit and loss statement includes several nominal accounts.
Notional
(Linguistics) Pertaining to the meaning of a word or phrase.
The notional definition of 'crane' can mean a bird or a construction device.
Nominal
(of a role or status) existing in name only
Thailand retained nominal independence under Japanese military occupation
Notional
See Notional amount or Notional profit for economic terms Notional (born February 1, 2004 in California) is an American Thoroughbred racehorse. He was sired by In Excess and out of the mare Truly Blessed.
Nominal
(of a price or charge) very small; far below the real value or cost
They charge a nominal fee for the service
Notional
Of, containing, or being a notion; mental or imaginary.
Nominal
(of a quantity or dimension) stated or expressed but not necessarily corresponding exactly to the real value
EU legislation allowed variation around the nominal weight (that printed on each packet)
Notional
Speculative or theoretical.
Nominal
Relating to or functioning as a noun
A nominal group
Notional
(Linguistics) Understood in terms of semantic content rather than grammatical structure. The word did is notional in We did the work and relational in We did not agree.
Nominal
(chiefly in the context of space travel) functioning normally or acceptably.
Notional
(Economics) Of or relating to the underlying asset or principal of a financial derivative such as a swap contract.
Nominal
Of, resembling, relating to, or consisting of a name or names.
Notional
Of, containing, or being a notion; mental or imaginary.
Nominal
Assigned to or bearing a person's name
Nominal shares.
Notional
Speculative, theoretical, not the result of research.
This paper proposes a notional Federated Identity Management (FIM) architecture.
Nominal
Existing in name only; not real
“a person with a nominal religious position but no actual duties” (Leo Damrosch).
Notional
(linguistics) Having descriptive value as opposed to a syntactic category.
Nominal
Insignificantly small; trifling
A nominal sum.
Notional
(finance) Used to indicate an estimate or a reference amount
Nominal
(Philosophy) Of or relating to nominalism.
Notional
(informal) Full of ideas or imaginings.
Nominal
(Economics) Of or relating to an amount or rate that is not adjusted for inflation.
Notional
A fake company used as a front in espionage.
Nominal
(Business) Of or relating to the par value of a security rather than the market value.
Notional
Consisting of, or conveying, notions or ideas; expressing abstract conceptions.
Nominal
(Grammar) Of or relating to a noun or word group that functions as a noun.
Notional
Existing in idea only; visionary; whimsical.
Discourses of speculative and notional things.
Nominal
Aerospace & Engineering According to plan or design
“The flyby was declared a success after the spacecraft phoned home to Earth at 8:53 p.m. EDT and all systems were nominal” (Emilee Speck).
Notional
Given to foolish or visionary expectations; whimsical; fanciful; as, a notional man.
Nominal
A word or group of words functioning as a noun.
Notional
Not based on fact; dubious;
The falsehood about some fanciful secret treaties
A small child's imaginary friends
Her imagined fame
To create a notional world for oneself
Nominal
Of, resembling, relating to, or consisting of a name or names.
Notional
Not based on fact or investigation;
A notional figure of cost helps in determining production costs
Speculative knowledge
Nominal
Assigned to or bearing a person's name.
Notional
Indulging in or influenced by fancy;
A fanciful mind
All the notional vagaries of childhood
Nominal
Existing in name only.
A nominal difference
Notional
Being (or being of the nature of) a notion or concept;
A plan abstract and conceptional
To improve notional comprehension
A notional response to the question
Nominal
(philosophy) Of or relating to nominalism.
Nominal
Insignificantly small.
He gave me only a nominal sum for my services.
Nominal
Of or relating to the presumed or approximate value, rather than the actual value.
The nominal voltage is 1.5 V, but the actual figure is usually higher.
The nominal yield of a nuclear weapon
Nominal
(finance) Of, relating to, or being the amount or face value of a sum of money or a stock certificate, for example, and not the purchasing power or market value.
Nominal
(finance) Of, relating to, or being the rate of interest or return without adjustment for compounding or inflation.
Nominal
(grammar) Of or relating to a noun or word group that functions as a noun.
This sentence contains a nominal phrase.
Nominal
(engineering) According to plan or design.
We'll just do a nominal flight check.
Apart from the slightly high temperature, all the readings from the spacecraft are nominal.
Nominal
(economics) Without adjustment to remove the effects of inflation.
My employer does not understand how low my nominal wage is.
The nominal GNP of this country is pretty low.
Nominal
Having values whose order is insignificant.
Nominal
(taxonomy) Of a species, the species name without consideration of whether it is a junior synonym or in reality consists of more than one biological species.
Nominal
(grammar) A noun or word group that functions as part of a noun phrase.
This sentence contains two nominals.
Nominal
(grammar) A part of speech that shares features with nouns and adjectives. (Depending on the language, it may comprise nouns, adjectives, possibly numerals, pronouns, and participles.)
Nominal
A number (usually natural) used like a name; a numeric code or identifier. (See nominal number on Wikipedia.)
Numeric codes of characters used in programming are nominals.
Nominal
A person listed in the Police National Computer database as having been convicted, cautioned or recently arrested.
Nominal
Of or pertaining to a name or names; having to do with the literal meaning of a word; verbal; as, a nominal definition.
Nominal
Existing in name only; not real; as, a nominal difference.
Nominal
Within acceptable limits; as expected; as, the hydraulic lines are at nominal pressure; - used mostly in aviation and space operations.
Nominal
Insignificant; trifling; - of prices or costs, as compared with the benefits gained; as, to pay a nominal sum for the data; a nominal fee.
Nominal
A nominalist.
Nominal
A verb formed from a noun.
Nominal
A name; an appellation.
A is the nominal of the sixth note in the natural diatonic scale.
Nominal
Relating to or constituting or bearing or giving a name;
The Russian system of nominal brevity
A nominal lists of priests
Taxable males as revealed by the nominal rolls
Nominal
Insignificantly small; a matter of form only (`tokenish' is informal);
The fee was nominal
A token gesture of resistance
A tokenish gesture
Nominal
Pertaining to a noun or to a word group that functions as a noun;
Nominal phrase
Noun phrase
Nominal
Being value in terms of specification on currency or stock certificates rather than purchasing power;
Nominal or face value
Nominal
Named; bearing the name of a specific person;
Nominative shares of stock
Common Curiosities
What does nominal mean in everyday language?
In everyday language, nominal often refers to something minimal or existing in name only.
Can nominal values change over time?
Nominal values such as the face value of a bond remain constant unless the terms of the bond are altered.
Is notional value real money?
Notional value is not real money; it represents a hypothetical amount used for the purpose of calculations in financial instruments.
What is the difference between nominal and notional interest rates?
Nominal interest rates are the rates quoted by financial institutions, whereas notional interest rates refer to underlying rates used in financial derivatives calculations.
How are notional amounts used in derivatives?
Notional amounts represent the total value of assets that derivative contracts control, used to calculate payments.
Why are notional values important in risk management?
Notional values are critical in risk management as they help quantify the potential exposure and risk in derivative transactions, affecting how firms manage their financial risk.
How do nominal and notional concepts apply in investments?
In investments, the nominal value could refer to the face value of a security, such as a bond, while the notional value could be used to determine the underlying value of derivatives linked to these securities.
What is a nominal variable in statistics?
A nominal variable is a type of categorical variable where the categories do not have a natural order or ranking, such as gender, race, or marital status.
What is the difference between nominal and notional in terms of project planning?
In project planning, nominal might refer to the baseline or estimated costs and timelines, whereas notional figures could represent hypothetical or proposed scenarios for project outcomes.
How is nominal GDP different from real GDP?
Nominal GDP measures the total value of all goods and services at current market prices, while real GDP adjusts for inflation to reflect the actual economic output in constant dollars.
What role do nominal values play in accounting?
In accounting, nominal values are used in the accounts that track revenues, expenses, profits, and losses. These are reset at the end of the accounting period to start fresh for the new period.
Can the nominal rate of a loan differ from its effective rate?
Yes, the nominal rate of a loan is the stated interest rate, while the effective rate takes into account the effects of compounding, often resulting in a higher rate.
What does it mean when something is nominal in legal terms?
In legal terms, nominal often refers to something minimal or token, like a nominal fee, which is a very small amount paid just to fulfill a legal requirement.
How do notional values affect leverage in financial markets?
Notional values determine the total amount of assets one can control through derivatives, enabling higher leverage, which means more significant potential gains or losses relative to the actual capital invested.
Are notional amounts ever exchanged in financial transactions?
Notional amounts themselves are not typically exchanged in financial transactions; they are used to calculate the actual payments or obligations in contracts such as swaps or futures.
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Written by
Tayyaba RehmanTayyaba Rehman is a distinguished writer, currently serving as a primary contributor to askdifference.com. As a researcher in semantics and etymology, Tayyaba's passion for the complexity of languages and their distinctions has found a perfect home on the platform. Tayyaba delves into the intricacies of language, distinguishing between commonly confused words and phrases, thereby providing clarity for readers worldwide.
Co-written by
Fiza RafiqueFiza Rafique is a skilled content writer at AskDifference.com, where she meticulously refines and enhances written pieces. Drawing from her vast editorial expertise, Fiza ensures clarity, accuracy, and precision in every article. Passionate about language, she continually seeks to elevate the quality of content for readers worldwide.
