interest rate hedge

An interest rate hedge is a financial strategy used to protect against unexpected changes in interest rates. For example, a business with a loan may worry that rising interest rates will increase their payments. To mitigate this risk, they might use financial instruments, like derivatives, to lock in current rates or offset potential losses. Essentially, it's a way to stabilize future costs and manage financial risk, ensuring that fluctuations in interest rates won’t significantly impact the organization's budget or profitability.