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Notional Value


The nominal value that is used to calculate swap payments. For example, in an interest rate swap, each period’s interest rates are multiplied by the notional value to determine the value of each counterparty’s payment. Suppose the swap‘s notional value is USD 10 million, and its two legs are a fixed interest rate (4%) and a floating interest rate (LIBOR+ 35 basis points). It follows that, if LIBOR is 3.7% at a given resetting date, the fixed-rate payer will receive a net amount based on the difference between (4.05%- 4%)x USD 10 million = USD 50,000. Actually, there is no point in exchanging the notional value, whilst just the net credit amount is paid to the corresponding counterparty.

The notional value is also called the notional principal amount or simply NPA.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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