In this curious article we will show you in detail what is the importance of nominal value? Know its meaning and importance.
Nominal value
When we refer financially to nominal value We talk about the value that we assign to different assets that are used for transactions between organizations. We can also achieve this concept in different expressions that involve the different factors that feed economies such as current or market prices.
These expressions refer to the fact that the nominal value refers to the agreement that has been reached within the organization to establish the value of the asset. It is important to understand that accounting works three types of values which are historical, nominal and real.
Historical value refers to the cost we paid or canceled for the asset at the time of purchase. The nominal value is what we are defining in this article and the real value refers to the real cost of the asset due to different elements such as depreciation or inflation in the country where we are.
It is necessary to understand that the concept of nominal value is used in different areas, which translates into completely different definitions depending on the branch where we are applying them.
Face value in finance
When we refer to the nominal value in the context of finance, we refer to the amount, cost or value that we assign to any financial security that we own. Financial titles are the assets that we own under ownership such as shares, promissory notes or properties in our name. One of the most distinctive characteristics of these assets is their ability to exchange or act to establish commercial actions of purchase and sale.
It is important to point out or emphasize that the person who owns these financial titles are the ones who will determine the nominal value of the asset. This means that if we are the owners of these financial titles, we will establish their nominal value. While if our supplier is the one that has the property title in his possession, he will establish this value.
It is important to note that establishing a nominal value for an asset does not translate as the price at which we are going to sell it, since this is only a guide that both the buyer and the seller have to establish a negotiation for the asset.
A clear example of these definitions are the shares that are issued in the constitution of the social capital of any company, organization or corporation. Another clear example of this is nominal value securities are those delivered by financial institutions such as bonds, mortgages or bank notes. Since all of these establish the nominal value of the acquired debt, additional payments such as expenses or interest must be made. If you want to know more about these banking figures, we invite you to enter the following link Structured deposits
Face value in economy
When we refer to the nominal value in this aspect, we must take into consideration the different external factors that affect us as an organization. This includes the fluctuation of the Gross Domestic Product (GDP), inflation and the different factors that may affect the value of the asset.
A clear example of this definition is the one that we can refer to the economy are the banknotes issued by the banks of the countries. If our economy suffers from inflationary conditions, the real value of that ticket quickly loses its value since it does not support the economic curve where we can find ourselves.
To understand a little more about this concept, we invite you to watch the following video
Difference between real and nominal value
As we have established, the real value is the cost that we establish to the assets after the factors of inflation and time in the market were taken into consideration in order to establish the cost that it should have in the market.
Just as the real value may rise due to inflationary effects, losses may arise due to depreciation or different effects that may directly affect the value of the assets that we are valuing.
As we have already defined earlier in this article, we must understand that the nominal value of the assets can be defined as the value that we assign to the assets depending on whether it is an economic or financial factor.
Other related concepts
As we have established in other points of the article, this concept has different definitions depending on the branch that we are analyzing or studying. Here are two additional concepts to expand these definitions
technical meter
When we use this concept within the technical meter we refer to the definition of a measurement where we can find the assignment to the calculation of different data through the analysis of each one of them. This technique is based on totally rounding aspects and can be used by means of de facto standard or general normal of numerical valuation.
It is important to note that each of the measurements that we use in the technical meter allows us to establish variations based on mathematical factors such as the accuracy and precision that we use within the method that we are using.
When we use each of these values we can find the manufacturing tolerance of the components we are studying and analyzing through mathematical measurements.
Engineering
When we use this concept within the engineering branch, we find that it means the possible value defined by the different devices or pieces of use at the time of the calculations.
They are those possible results that we find in order to be able to establish different numerical factors that establish potential solutions to complex problems.
By having each of these concepts clear, we invite you to continue sharing each of the knowledge that we have learned within your day to day. Remember the historical value refers to the moment that we have canceled for the asset, the real value is the price that we have established after the complete analysis of the internal and external factors of the market and the nominal value is that we assign to it for being owners of the assets. assets that we will use to achieve the actions of purchase and sale.