when calculating bond payments a bond s face value is considered notional when it comes to determining the interest due the payments are a percentage of the face value even if the face value is not available in a true sense the face value cannot be withdrawn and may not even exist in a traditional sense until the bond approaches maturity but it does have an understood value that is required for the performing of relevant calculations 
interest rate swaps usually involve the exchange of a fixed interest rate for a floating rate or vice versa to reduce or increase exposure to fluctuations in interest rates or to obtain a marginally lower interest rate than would have been possible without the swap special considerationsan interest rate swap involves two parties who lend funds to one another but with different terms the repayment schedule may be for different durations or different interest rates in cases where a transaction involves the same amount of principal the amount being lent and received by each party the principal is notional and does not actually change hands or may not even functionally exist when the underlying asset is an amortizing loan the underlying principal decreases in value over the repayment period these swaps are amortizing swaps interest rate swaps are often used to help shift the risk or return of particular investments up or down one organization might have an asset with a variable interest rate while the other holds an asset with a fixed rate accepted as a zero sum agreement one party may benefit from the arrangement while the other experiences a loss example of notional principal amounthere s a hypothetical example to show how the concept of a notional principal amount works let s say two companies enter into an interest rate swap contract the contract has the following conditions for three years this would be considered a plain vanilla interest rate swap because one party pays interest at a fixed rate on the notional principal amount and the other party pays interest at a floating rate on the same notional principal amount 