CandleFocus

Nominal

Candlefocus Editor
Nominal is an important financial term that can be applied to a wide range of economic and financial practices. In more basic terms, it something that is considered small or minor, usually far below the real value or cost. As an example, a nominal fee might only be a few dollars even though the cost is significantly higher or the time and effort involved could have been costly.

Moving to financial terms, nominal is often used to refer to an unadjusted rate in value such as interest rates or GDP (gross domestic product). The nominal interest rate is the rate stated by the lender while the real interest rate accounts for the effect of inflation in the calculation. The real interest rate is the nominal interest rate minus the inflation rate. This means that if the inflation rate is higher than the nominal interest rate, the real interest rate is negative. In other words, the purchasing power of the interest payment is less than the nominal rate.

Nominal is also used in the context of stocks or bonds. Nominal values are the original face values that are stated on the stock or bond that are not adjusted for inflation. These can be deceptively low, and investors should use caution when expecting returns on their investments.

Overall, nominal is a key financial term with multiple meanings across a range of economic and financial practices. It can refer to a cost that is far below the real value or cost, an unadjusted rate in value, or the original face value of a stock or bond. Knowing what nominal means and how it can affect your finances can help you make informed decisions about your investments and other financial transactions.

Glossary Index