In an interest rate swap, the notional principle:
A) is the difference in the fixed and floating interest rates.
B) is the difference in the fixed and floating interest payments.
C) is used to calculate the FRA basis.
D) is used to calculate the value of the interest payments.
E) is used to calculate the hedge ratio.

Question

Quizplus · Accepted Answer

The notional principle in an interest rate swap is the specified amount on which the interest rate swap is based. It is not actually exchanged between the parties, but is used to calculate the value of the interest payments. Therefore, the correct choice is D.

In an Interest Rate Swap, the Notional Principle