Bulletin – December 2012 Description for Figure 1 in article: Australian OTC Derivatives Markets: Insights from the BIS Semiannual Survey

The figure shows how the cash flows between two counterparties to a fixed-for-floating interest rate swap are determined by multiplying an amount of principal, in this case $1 million, by the contract's fixed and floating reference rates. The sum of principal amounts used to calculate the contract cash flows is the notional principal of the contract, which in this case is $2 million.

[End description.]

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