Interest Rate Derivatives

Interest rate derivatives are financial contracts whose value is based on the future movements of interest rates. They enable parties to manage, hedge, or speculate on interest rate risks. Common types include interest rate swaps, where two parties exchange fixed and variable interest payments, and options that provide the right, but not the obligation, to lock in interest rates. These tools are widely used by businesses, banks, and investors to stabilize cash flows and protect against unfavorable changes in interest rates, thereby enhancing financial decision-making and risk management.