notional

Examples of notional in the following topics:

• Overview of Derivatives

  • In practice, it is a contract between two parties that specifies conditions - especially dates, resulting values of the underlying variables, and notional amounts - under which payments are to be made between the parties.
  • This graph illustrates total world wealth versus total notional value in derivatives contracts between 1998 and 2007.

• Expected Risk and Risk Premium

  • The notion of risk implies that a choice having an influence on the outcome exists.

• Uses of Derivatives to Manage Exposure

  • The corporation could buy a forward rate agreement (FRA), which is a contract to pay a fixed rate of interest six months after purchases on a notional amount of money.

• Opportunity Costs

  • The notion of opportunity cost plays a crucial role in ensuring that scarce resources are allocated efficiently.

• Implications for Variance

  • A fundamental justification for asset allocation (or Modern Portfolio Theory) is the notion that different asset classes offer returns that are not perfectly correlated, hence diversification reduces the overall risk in terms of the variability of returns for a given level of expected return.

• Risks Involved in Capital Budgeting

  • The notion implies that a choice having an influence on the outcome exists (or existed).

• Cash Flow Factors

  • For example, a company may be notionally profitable but generating little operational cash (as may be the case for a company that barters its products rather than selling for cash).

• Other Considerations in Capital Budgeting

  • The notion of real options was developed from the idea that one can view firms' discretionary investment opportunities as a call option on real assets, in much the same way as a financial call option provides decision rights on financial assets.