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The notional amount (or notional principal amount or notional value) on a financial instrument is the nominal or face amount that is used to calculate payments made on that instrument. This amount generally does not change and is thus referred to as notional .
In a currency forward, the notional amounts of currencies are specified (ex: a contract to buy $100 million Canadian dollars equivalent to, say US$75.2 million at the current rate—these two amounts are called the notional amount(s)). While the notional amount or reference amount may be a large number, the cost or margin requirement to command ...
The term notional principal contract (NPC) is a term of art used by U.S. federal income tax professionals for contracts based on an underlying notional amount (other financial services professionals refer to such NPCs under the more general heading "swaps," although not all swaps are NPCs). The reason the underlying amount is "notional" is that ...
The instruments can be almost anything but most swaps involve cash based on a notional principal amount. [1] [2] The general swap can also be seen as a series of forward contracts through which two parties exchange financial instruments, resulting in a common series of exchange dates and two streams of instruments, the legs of the swap.
A FRA transaction is a contract between two parties to exchange payments on a deposit, called the Notional amount, to be determined on the basis of a short-term interest rate, referred to as the Reference rate, over a predetermined time period at a future date. FRA transactions are entered as a hedge against interest rate changes.
notional amount: This is the "face value" of the NDF, which is agreed between the two counterparties. It should again be noted that there is never any intention to exchange the notional amounts in the two currencies; fixing date: This is the day and time whereby the comparison between the NDF rate and the prevailing spot rate is made. This is ...
where N is the notional value exchanged and is the day count fraction corresponding to the period to which L applies. For example, suppose that it is January 2007 now and you own a caplet on the six month USD LIBOR rate with an expiry of 1 February 2007 struck at 2.5% with a notional of 1 million dollars. Next, if on 1 February the USD LIBOR ...
In this case the pre-agreed exchange rate, or strike price, is 2.0000 USD per GBP (or GBP/USD 2.00 as it is typically quoted) and the notional amounts (notionals) are £1,000,000 and $2,000,000. This type of contract is both a call on dollars and a put on sterling , and is typically called a GBPUSD put , as it is a put on the exchange rate ...