 Notional principal contract

The term notional principal contract (NPC) is a term of art used by U.S. federal income tax professionals for contracts based on an underlying notional amount (other financial services professionals refer to such NPCs under the more general heading "swaps," although not all swaps are NPCs).The reason the underlying amount is "notional" is that neither party to the NPC is required to actually hold the property comprising the underlying amount.