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. ... 
Floating Price
The leg of a swap that is based on a fluctuating interest rate. ... 
Accreting Principal Swap
A derivative where counterparties exchange financial instrument ... 
Index Amortizing Swap  IAS
An interest rate swap where the notional principal amount declines ... 
Swap
A derivative contract through which two parties exchange financial ...

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