Notional principal amount
Also found in: Acronyms.
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.
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