Primary navigation:

QFINANCE Quick Links
QFINANCE Reference
Add the QFINANCE search widget to your website

Home > QFINANCE Dictionary > Definition of notional principal amount

Definition of

notional principal amount


value of loan the value used to represent a loan in calculating interest rate swaps

notional principal amount - Related Articles
  • Understanding and Using Interest Rate Swaps


    notional principal amount (for example, US$1 million). The notional amount is generally used only to calculate the size of cash flows to be exchanged. The floating rate is usually pegged to a reference rate such as the Libor, and the interest payments are settled net. When the swap is initiated

  • Swaps, Options, and Futures: What They Are and Their Function


    A swap is a derivative in which two parties agree to exchange a set of cash flows (or leg) for another set. A notional principal amount is used to calculate each cash flow; these are rarely exchanged by the parties. A swap is usually used to hedge a risk, such as an interest-rate risk

  • Swap Valuation


    As with the floating rate payments, LIBOR forward rates are used to discount the notional principal for the three-year period. The PV of the notional principal is calculated by multiplying the days in the period and the floating rate forward discount factor.

  • Hedging Interest Rate Risk—Case Study and Strategies


    Moreover, because the amount of the swap is notional, it is not necessary for the company to match the whole amount of the loan or to ensure that its entire life is covered. There may well be occasions when risk managers expect interest rate rises over the short to medium term. Continuing with a


Definitions of ’notional principal amount’ and meaning of ’notional principal amount’ are from the book publication, QFINANCE – The Ultimate Resource, © 2009 Bloomsbury Information Ltd. Find definitions for ’notional principal amount’ and other financial terms with our online QFINANCE Financial Dictionary.

Back to top

Related Blog Posts

More related Blog results