The fictional principal on which an interest rate swap is based is called the:
A) swap dealer's call rate.
B) notional principal.
C) LIBOR.
D) basis rate.

Question

Quizplus · Accepted Answer

The notional principal is a fictional principal that is used as the basis for calculating payments in an interest rate swap. It is not a real amount that is exchanged between the parties. Rather, it is simply a benchmark that is used to determine the cash flows that will be exchanged. The notional principal remains constant throughout the life of the swap, and is used to calculate the interest payments that are exchanged between the parties.

The Fictional Principal on Which an Interest Rate Swap Is