notional amount

USAGE SUMMARY

The term "notional amount" is correct and commonly used in written English, particularly in finance and accounting contexts.
It refers to the hypothetical or theoretical value of something, rather than its actual or tangible value. Example: The notional amount of the company's assets was $1 million, but their market value was only $750,000.

✓ Grammatically correct

News & Media

Academia

Science

Human-verified examples from authoritative sources

Exact Expressions

32 human-written examples

The government charges departments a notional amount each year to cover the increase in future liabilities.

The Economist

These credit derivatives have exploded in recent years, to an outstanding notional amount of $43 trillion.

The Economist

Annual costs of clearing for a market exceeding $100 trillion in notional amount to tens of billions of dollars.

Columbia University

The entire amount of insurance that has been written, also called the notional amount, is $62 trillion.

The New York Times

The full Luxembourg corporate tax rate should still apply, but only on a notional amount of profit.

The Guardian - Business

The notes, fairly, make the point that the fair value is smaller than the notional amount - Lehman believed the figure was $36.8bn.

The Guardian - Business

Human-verified similar examples from authoritative sources

Similar Expressions

28 human-written examples

Notional amounts are useful as a measure of market size.

The Economist

The market has almost doubled in size every year for the past five years, reaching $20 trillion in notional amounts outstanding last June, according to the Bank for International Settlements.

The Economist

The notional amounts of over-the-counter derivatives continued to expand in the first half of 2008, according to data from the Bank for International Settlements BISS).

The Economist

That is a small fraction of the $20 trillion in notional amounts outstanding, and the whole lot would never blow up at once.

The Economist

That, with a few steps in between and a lot of fancy math, is how those trillions of "notional" amounts shrink to a much smaller "net" figure, in the billions.

The New York Times

Expert writing Tips

Best practice

When discussing derivatives, clarify that the "notional amount" isn't the actual money at risk, but rather the reference amount used for calculating payments.

Common error

Avoid assuming that a large "notional amount" in derivatives automatically implies a proportionally large risk. The actual risk depends on the derivative's structure and market conditions.

Linguistic Context

The phrase "notional amount" primarily functions as a noun phrase that modifies another noun, often related to finance or accounting. It specifies a theoretical or face value, as confirmed by Ludwig examples.

Expression frequency: Common

Frequent in

News & Media

56%

Academia

24%

Science

20%

Less common in

Formal & Business

0%

Encyclopedias

0%

Wiki

0%

Ludwig's WRAP-UP

The term "notional amount" is a common noun phrase primarily used in financial contexts to denote a theoretical or face value, especially in derivative contracts. Ludwig AI confirms its grammatical correctness and widespread use. While the term helps quantify the scale of a transaction, it's crucial to remember that it doesn't represent the actual money at risk. As highlighted by Ludwig, confusing it with actual exposure is a common error. Related phrases include "nominal value" and "face value", but they each carry slightly different nuances. Use "notional amount" precisely to avoid misleading interpretations in financial discussions.

More alternative expressions

Phrases that express similar concepts, ordered by semantic similarity:

Nominal value

Emphasizes the stated or face value, rather than the market or real value.

Face value

Highlights the value printed or stated on a financial instrument.

Principal amount

Refers to the original sum of money borrowed or invested, before interest or appreciation.

Stated amount

Focuses on the amount that is explicitly declared or specified.

Theoretical value

Stresses the calculated or expected value, which may differ from the actual value.

Reference amount

Implies an amount used as a benchmark or basis for calculations.

Hypothetical sum

Underscores the speculative or conditional nature of the amount.

Paper value

Suggests a value that exists on paper but may not be realized in practice.

Book value

Indicates the value of an asset as recorded in a company's books.

Initial investment

Focuses on the original amount of capital put into an asset or project.

FAQs

How is "notional amount" used in finance?

In finance, "notional amount" typically refers to the face value of a derivative, used to calculate payments. It is not the amount exchanged, but a reference point for determining cash flows.

What does "notional" mean in the context of finance?

In finance, "notional" indicates a theoretical or hypothetical value. It is used to calculate payments or measure the size of a transaction, without necessarily representing real money changing hands.

Is the "notional amount" the same as the market value?

No, the "notional amount" is not the same as the market value. The "market value" reflects the current price at which an asset can be bought or sold, while the notional amount is a reference figure used in derivative contracts.

What is the significance of the "notional amount" in derivatives trading?

The "notional amount" in derivatives trading is significant because it helps determine the size of the position and the potential payments. However, it does not represent the actual cash exchanged or the maximum potential loss.