NOMINAL RATE Meaning and
Definition
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The term "nominal rate" refers to the stated or announced rate of interest or return in a financial transaction. It represents the money percentage that is officially declared and advertised by lenders, financial institutions, or borrowers as the interest or return on an investment or loan. The nominal rate is generally expressed on an annual basis.
The nominal rate serves as a benchmark to understand the base rate of interest or return without taking into account external factors such as inflation or fees. It helps individuals or investors to compare different financial products or loans to make informed decisions.
However, the nominal rate does not provide an accurate representation of the actual returns an individual may receive. It disregards other significant factors, primarily inflation, which can erode the purchasing power of the nominal rate over time. To determine the actual interest or return, one must consider the real interest rate, calculated by subtracting the inflation rate from the nominal rate. The real interest rate demonstrates the true rate of return on an investment or loan after accounting for inflation.
Overall, the nominal rate acts as an initial reference point for individuals or investors when evaluating financial products, but it is crucial to consider the real interest rate to understand the actual returns and make more precise assessments.
Common Misspellings for NOMINAL RATE
- bominal rate
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- hominal rate
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- nlminal rate
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- n0minal rate
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- noninal rate
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- nomibal rate
Etymology of NOMINAL RATE
The word "nominal" derives from the Latin word "nomen", meaning "name" or "noun". In English, "nominal" is used to describe something as being in name only but not necessarily in reality or substance.
The term "rate" comes from the Latin word "ratus", which means "reckoned" or "considered". In contemporary usage, "rate" refers to a fixed or variable amount of payment or charge for a service, product, or activity.
Therefore, the etymology of the term "nominal rate" combines the concept of something being designated by name and a specific amount of payment or charge.
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