Denomination

The face value classification of a financial instrument

What is Denomination?

A denomination is a classification for the face value of a financial instrument. It includes financial instruments, such as bonds, currency notes, coins, etc. In particular, the denomination is a classification used to clarify acceptable payment options in financial trades.

 

Denomination

 

Summary

  • Denomination refers to the face value classification of a financial instrument.
  • Transactions can be denominated in all forms of currency.
  • Stocks are denominated by the minimum value given for a specific security. Bonds are denominated by their value at maturity.

 

Forms of Denomination

A denomination is a concept that comes with an assortment of different meanings. Discussed below are the many forms of a denomination in finance:

 

1. Currency Notes

In regard to tangible money, denomination refers to the types of notes that are dispensed from an ATM. The denomination of bills can range from $20, $50, and $100.

 

2. Transactions

Let us say Italy invoiced Canada for a large shipment of metal. The invoice would be described as a “Canadian dollar-denominated transaction” if the invoice were in Canadian dollars. If it were the other way, it would be a “euro-denominated transaction.”

 

3. Stocks

Stocks come with a par value that relates to denomination. The value is referred to as the minimum value given for a specific security. The denomination, in this case, would be if a stock issuer chose to issue stock for “one cent par value per share.”

Although it may seem odd, the denomination is set low to avoid potential legal liabilities if the stock was listed at a higher price.

 

4. Bonds

The denomination for a bond is equal to the bond’s par value. As a reminder, the par value of a bond is the price paid to the lender at the maturity date. The value comprises an extremely large range because every bond matures differently.

With regard to selling, bonds are sold below the denomination. Bonds are sold below denomination because sellers are confident they can make their money back through the accumulation of interest over time.

 

Denomination – Collectable Currency

As stated above, the denomination is used to classify several financial instruments. It can also apply to collectible currency.

For example, you are taking a walk in a park, and you find a silver quarter from the 1950s. The face value of the quarter would read “25 cents,” but it could potentially be worth more. It is because quarters made in the U.S. between 1932 and 1964 could be made out of 90% silver. If it were truly made out of silver, the quarter would be worth more than the original denomination (25 cents) just based on the value of silver.

Other than the value of the silver, the quarter can surpass the value of the original denomination with a number of factors, such as rarity, condition, and grading.

To put it into perspective, below is a list of currency that is worth more than the face value.

1913 Liberty Head Nickel: In 1913, an extremely small amount of the coins was put into circulation. If auctioned, the nickel can be worth up to $3.1 million.

1969-S Lincoln Cent: If the coin comprises the “double die obverse” characteristic, it can be worth $24,000 above face value.

1928 Gold Certificate ($50): The bill can be worth up to $120,000.

 

Denomination Nomenclature Examples

Denomination nomenclature refers to the “nicknames” that are given to specific values of currency. Below are some examples of denomination nomenclature:

United States: The $100 bill is referred to as a “Benjamin.” It is a reference to the Founding Father, Benjamin Franklin.

Canada: In Canada, dollar coins are referred to as “loonies” and their two-dollar coins are referred to as “toonies.”

Britain: In the U.K., 500 pounds is sometimes referred to as a “monkey.”

Australia: In Australia, the five-cent coin is sometimes referred to as “shrapnel.” It is because it is the smallest coin value in Australia.

New Zealand: One- and two-dollar coins are often referred to as “gold coins.”

Russia: Due to hyperinflation after the Russian Civil War, one billion rubles may be referred to as “watermelon.”

 

Additional Resources

CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:

  • Functions of Money
  • Numismatics
  • Nominal Value
  • Virtual Currency

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