Interest rate futures contracts

Interest rate futures can be used to hedge against interest rate changes between the current date and date at which the rate on the lending or borrowing is set. Borrowers sell futures to hedge against interest rate rises. Lenders buy futures to hedge against interest rate falls.

Advantage：

1) Cost of interest futures are reasonably low.

2) A company can hedge relatively large exposures of cash with a relatively small   

Disadvantage：

1) Inflexibility of terms traded interest rate futures are for fixed periods and cover begins in March, June, September or December. initial employment of cash. Contracts are for fixed, large, amounts, so may not entirely match the amount being hedged.

2) The company may be liable to the risk that the price of the futures contract may not move in the expected direction. 3)The company will have to settle daily profits or losses on the contract.

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