What is notional principal?Notional
The amount used to calculate swap interest; it usually never changes hands.
Learn “notional principal” in an animated lesson
- Interest Rates & SwapsDV01: What One Basis Point Is Worth
If rates move just 0.01%, how much does your swap or bond gain or lose? DV01 turns interest rate risk into money, and it tells you how much notional to use when hedging.
- Interest Rates & SwapsForward Rate Agreements (FRAs)
Lock in today the rate you'll borrow at 6 months from now. If rates rise, the FRA makes up the difference.
- Interest Rates & SwapsInterest Rate Swaps (IRS)
One side pays a fixed rate and the other pays a floating rate, and they exchange only the net interest. Watch the cash flows go back and forth along the timeline.
Related terms
See how “notional principal” works for yourself with an animation you can drag and play.
Go to “DV01: What One Basis Point Is Worth”