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Main Dictionary D

Denomination

A denomination is a categorization for a face value of any financial instrument, which applies to money, securities and different types of investments and also used as a determinant of an acceptable payment option in financial transactions.

What is a Denomination

In most of the cases, a denomination is a benchmark or some unit of value related to money, currencies and other financial instruments, such as bonds produced by the government.

In regard to material money, denomination refers to the types of notes that are dispensed from automated teller machines (ATMs)—electromechanical devices with a switch that know how much cash is available at the moment and in what denomination. Customers can enter a withdrawal amount, select "custom denominations" and choose how many notes they want in denominations. The denomination of bills can vary from 20 to 50 and 100 dollars.

But in some ATMs banknotes are available only in certain denominations. For instance, if the client wants to withdraw $550 from an ATM, and the ATM has only one denomination, for example, it has $100 denomination available, it will dispense five bills of $100, so the client will be able to withdraw either $500 or $600.

Regarding the trade transactions, if the exporter invoices the buyer in US dollars, then it does not matter in which part of the world this exporter is based, the transaction can be denominated in US dollars. But a situation in which quotes can also be made in other currencies, for example the euro, is also quite acceptable.

In addition, some foreign corporations issue securities denominated in a currency other than their own.

Nomenclature and Denomination

Nomenclature is the process of giving a name to an object, so many currencies have not only an official name, but also a nickname. Thus, the British shilling has the nickname of the “bob” and the Canadian dollar (CAD) is called "loonie". “Nickel” is the nickname for the US (and also Canadian) five-cent coin, and the "Benjamin" is the name of a $100 bill.

Some collectible currencies have a market value higher than their face value, for example, the price of some old coin can reach hundreds or thousands of dollars and that is why coins can act as an alternative to investments.

Denomination and par value

The denomination attached to a bond or other investment instrument with a fixed income is equal to its par value, that is, the amount that is paid at maturity. Different bonds can have different denominations, from $50 to $10,000.

At the same time, the value of a bond on the stock exchange usually differs from its face value. This is because the market price is based on how many investors want to buy the bond. If people believe in the issuer and consider its securities safe for investment, they will be more willing to buy its bonds, and the price of them will go up. In the case of other securities, the par value constitutes a minimum value for the holding. 

When issuing common stock, corporations actually issue them with a face value as little as zero or one cent. This pricing convention allows them to avoid legal liabilities they may expose themselves to if they listed the stock at a higher price.

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