A futures contract which allows the buyer to lock in a future investment rate today or at a specific incoming date based on an underlying security which is some interest-paying debt instrument. With an interest rate futures, the lender and the borrower agree to lend and borrow, respectively, a specified amount of money on a predetermined future date. The value of an interest rate futures moves in an inverse proportion to the change in market interest rates.
Such contracts are used mainly by companies (such as banks, brokerages, etc) vulnerable to changes in interest rates, and therefore would be keen to mitigate interest rate risk. Interest rate futures are also used by speculators to bet on the direction of market rates in the future. These futures are usually traded on financial futures and options exchanges.
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