Notional Principal Amount

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Dictionary Says

Definition of 'Notional Principal Amount'

In an interest rate swap, the predetermined dollar amounts on which the exchanged interest payments are based. 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.
Investopedia Says

Investopedia explains '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 one-year 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.
Search results for

'Notional Principal Amount'

  • An Introduction To Swaps

    http://www.investopedia.com/articles/optioninvestor/07/swaps.asp
    ... following terms: Company A pays Company B an amount equal to 6% per annum
    on a notional principal of $20 million. Company B pays ...

  • Principal-Protected Notes: Hedge Funds For Everyday Investors

    http://www.investopedia.com/articles/bonds/07/principal_protected.asp
    ... that each payment reduces the guaranteed principal by an equivalent amount. ... in the
    underlying that have a notional value equal to the invested principal. ...

  • CFA Level 1 Study Guide - Derivatives - Interest Rate and Equity ...

    http://www.investopedia.com/exam-guide/cfa-level-1/derivatives/interest-rate-equity-swaps.asp
    Sign In• Register• Free Annual Reports • Free Newsletters. Dictionary;
    Investing; Markets; Personal Finance; Active Trading; Forex; ...

  • Managing Interest Rate Risk

    http://www.investopedia.com/articles/optioninvestor/08/manage-interest-rate-risk.asp
    ... rate. The actual payments are calculated based upon a notional principal
    amount and paid at intervals determined by the parties. ...

  • Currency Swap Basics

    http://www.investopedia.com/articles/forex/11/introduction-currency-swaps.asp
    ... 1.00 USD and that both Companys require the same equivalent amount of funding ... based
    instruments include an immediate and terminal exchange of notional principal ...

  • An In-Depth Look At The Swap Market

    http://www.investopedia.com/articles/trading/11/introduction-swap-market.asp
    ... In a currency swap, two counterparties aim to exchange principal amounts and ... a currency
    swap, the parties can exchange an equivalent notional amount (based on ...

  • An Introduction To Structured Products

    http://www.investopedia.com/articles/optioninvestor/07/structured_products.asp
    ... in the form of notes, each with a notional face value ... the issue date you pay the
    face amount of $1,000 ... This note is fully principal-protected, meaning that you ...

  • CFA Level 1 Study Guide - Derivatives - Interest Rate Options vs. ...

    http://www.investopedia.com/exam-guide/cfa-level-1/derivatives/interest-rate-options-versus-fras-forward-rate-agreements.asp
    Sign In• Register• Free Annual Reports • Free Newsletters. Dictionary;
    Investing; Markets; Personal Finance; Active Trading; Forex; ...

  • Hedge Funds' Higher Returns Come At A Price

    http://www.investopedia.com/articles/mutualfund/08/hedge-fund.asp
    ... you don't have to employ all your cash to command a large notional amount. ... E. Brown,
    CFA, is a member of the fixed income team of Principal Global Investors ...

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