What is the 'Notional Principal Amount'
The notional principal amount, in an interest rate swap, is the predetermined dollar amounts on which the exchanged interest payments are based. The notional principal never changes hands in the transaction, which is why it is considered notional, or theoretical. Neither party pays or receives the notional principal amount at any time; only interest rate payments change hands.
BREAKING DOWN 'Notional Principal Amount'
For example, two companies might enter into an interest rate swap contract as follows:
For three years, Company A pays Company B 5% interest per year on a notional principal amount of $10 million.
For the same three years, Company B pays Company A the oneyear LIBOR rate on the same notional principal amount of $10 million.
This would be considered a plain vanilla interest rate swap because one party pays interest at a fixed rate on the notional principal amount and the other party pays interest at a floating rate on the same notional principal amount.

Amortizing Swap
An exchange of cash flows, one of which pays a fixed rate of ... 
Fixed Price
The leg of a swap that is based on an unchanging interest rate. ... 
Notional Value
The total value of a leveraged position's assets. This term is ... 
Floating Price
The leg of a swap that is based on a fluctuating interest rate. ... 
Index Amortizing Swap  IAS
An interest rate swap where the notional principal amount declines ... 
Accreting Principal Swap
A derivative where counterparties exchange financial instrument ...

Investing
Understanding Notional Value
This term is commonly used in the options, futures and currency markets because a very small amount of invested money can control a large position. 
Investing
Interest Rate Swaps Explained
Plain interest rate swaps that enable the parties involved to exchange fixed and floating cash flows. 
Trading
Currency Swap Basics
Find out what makes currency swaps unique and slightly more complicated than other types of swaps. 
Markets
What Does Principal Mean?
For banks, principal refers to the amount due on a loan, and is used to calculate interest payments. 
Trading
Hedging With Currency Swaps
The wrong currency movement can crush positive portfolio returns. Find out how to hedge against it. 
Markets
What's an Interest Rate Swap?
An interest rate swap is an exchange of future interest receipts. Essentially, one stream of future interest payments is exchanged for another, based on a specified principal amount. 
Trading
Managing Interest Rate Risk
Interest rate risk stems from the possibility that an interestbearing assetâ€™s value will change due to changing interest rates. 
Markets
Currency Swap Basics
A currency swap involves two parties exchanging a notional principal and interest to gain exposure to a desired currency. 
Investing
Different Types of Swaps
Investopedia explores the most common types of swap contracts. 
Managing Wealth
How To Read Interest Rate Swap Quotes
Puzzled by interest rate swap quotes terminology? Investopedia explains how to read the interest rate swap quotes

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