Notional Principal Contract

Notional Principal Contract means:
a derivative contract that provides for periodic payments from one taxpayer to another, calculated by reference to a specified index upon a notional principal amount, in exchange for specific consideration or a promise to pay similar amounts. Former Tax Regulation (check if this Reg. is current here) §1.988-l(a)(2)(iii)(B).

Example of Notional Principal Contract:

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Susan agrees to a swap whereby he will pay Baker annually an amount in pounds sterling equal to the pound prime rate times £1,000,000, and Baker agrees to pay Susan an amount in dollars equal to the dollar prime rate times $1,750,000.