Notional amount financial definition of Notional amount
In an interest rate swap, the arbitrary amount over which interestis calculated. Suppose the two legsof the swap are a fixed interest rate, say 3.5%, and a floating interest rate, say LIBOR+ 0.5%, and the notional principal amount is $1 million. In such a swap, the only things traded are the two interest rates, which are calculated over the notional principal amount.
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