The face value or principal amount of a financial instrument used for calculating payments, but not necessarily the amount at risk or exchanged. In derivatives, it's the reference amount for determining cash flows without actual exchange of principal.
From Latin 'notionalis' (relating to concepts or ideas) via 'notio' (concept, idea). In finance, this term evolved in the 1970s derivatives markets to distinguish between theoretical calculation amounts and actual money at risk.
Think of notional value like the speedometer in your car - it shows $1 million for calculation purposes, but you might only have $10,000 actually at risk. A $100 million interest rate swap doesn't mean anyone is lending $100 million; it's just the reference amount for calculating who owes what!
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