Notional principal amount

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Notional principal amount

In an interest rate swap, the predetermined dollar principal on which the exchanged interest payments are based.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Notional Principal Amount

In an interest rate swap, the arbitrary amount over which interest is calculated. Suppose the two legs of the swap are a fixed interest rate, say 3.5%, and a floating interest rate, say LIBOR + 0.5%, and the notional principal amount is $1 million. In such a swap, the only things traded are the two interest rates, which are calculated over the notional principal amount. That is, the $1 million is never exchanged, but the interest is calculated with reference to it. For example, the fixed interest is 3.5% of $1 million (or $35,000). It is also called the notional value.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
MMAC reduced its investment in the leveraged bond portfolio through the termination of 15 total return swap agreements that had a total notional amount of USD 102.6 million and sold one multi-family tax-exempt bond and one subordinate certificate interest in a multi-family tax-exempt bond.
Furthermore, bond spreads increase in a concave manner with CDS insurance, and the maximum impact of CDS insurance on spreads occurs when the CDS net notional amount exceeds total debt.
In particular, MMAC reduced its investment in the leveraged bond portfolio through the termination of 15 total return swap agreements that had a total notional amount of $102.6M and sold one multi-family tax-exempt bond and one subordinate certificate interest in a multi-family tax-exempt bond.
In addition, holders of FCA mandatory convertible securities are entitled to receive 0.77369 common shares of Ferrari for each MCS unit of USD 100 in notional amount.
Based on the contracted settlement date, the profit or loss is adjusted between the two counterparties based on the difference between the contracted NDF rate and the prevailing spot forex rates on an agreed notional amount.
The activities at AIGFP, including selling credit default swaps on $2.77 trillion notional amount of CDS is widely attributed as the reason the company needed government aid to stay alive.
The final regulations make clear that the adjustments are made based on a distribution or contribution of a notional amount and therefore without the recognition of any built-in gain or loss on the distribution of that notional amount.
For example, as of December 2010, the notional amount outstanding (the gross nominal value of all deals) in the entire OTC market, excluding commodity contracts, was $598 trillion, nearly nine times the amount outstanding in the exchange-traded market (S68 trillion).
AIG Financial Products, the unit behind the insurer's collapse, reduced the notional amount of its derivative portfolio by 20% during the quarter, to pounds 514bn at March 31.
They include the reference rate, notional amount, and payment provisions.
OCC's Quarterly Report on Bank Trading and Derivatives Activities said that the notional amount of derivatives held by insured U.S.