Notional principal
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(NP).
Notional principal is the base amount on which the settlement of a derivative instrument - such as an Forward Rate Agreement (FRA) or a swap - is calculated.
The amount of notional principal would commonly be set equal to the principal amount of any underlying exposure being hedged.
The notional amount itself is not exchanged.
Notional principal is also known as the notional amount, or notional value.
