Month End Glossary

Notional Value (Derivatives)

Notional value in terms of derivatives refers to the total value of a leveraged financial asset's underlying position.

Notional value, in the context of derivatives, serves as a metric to represent the total value of what the derivative contract is based on, or its underlying asset. For instance, in a futures contract or swap agreement, the notional amount describes the quantity, oftentimes denominated in monetary terms, upon which the financial contract's terms are predicated without actually being exchanged. This concept is pivotal, particularly in relation to expressions of derivative-related risks, profitability metrics, and capital requirements. For example, in a foreign exchange forward, the notional value might denote the currency amount against which values are swapped between the participants. Understanding the notional amount is crucial for accounting for derivatives accurately and effectively assessing financial exposures.

Related Terms

Make your next Month End easy.
Start your free trial today.

Your first Month End free. We’ll import your existing checklist. It’s 2025 - time to get control of your Month End close process!