Definition for : Notional amount

The notional amount is the theoretical amount to which the difference between the guaranteed rate and the floating rate is applied. The notional amount is never exchanged between the buyer and seller of an FRA (see forward rate agreement). The Interest rate differential is not paid at the Maturity of the underlying loan but is discounted and paid at the Maturity of the FRA.

(See Chapter 49 Managing working capital of the Vernimmen)

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