What is an 'InterestRate Derivative'
An interestrate derivative is a financial instrument based on an underlying financial security whose value is affected by changes in interest rates. Interestrate derivatives are hedges used by institutional investors such as banks to combat the changes in market interest rates. Individual investors are more likely to use interestrate derivatives as a speculative tool  they hope to profit from their guesses about which direction market interest rates will move.
BREAKING DOWN 'InterestRate Derivative'
A plain vanilla interestrate swap is the most basic type of interestrate derivative. Under such an arrangement, there are two parties. Party one receives a stream of interest payments based on a floating interest rate and pays a stream of interest payments based on a fixed rate. Party two receives a stream of fixed interest rate payments and pays a stream of floating interest rate payments. Both streams of interest payments are based on the same amount of notional principal. Through this exchange, or swap, of cash flows, the two parties hope to reduce uncertainty and the threat of loss from changes in market interest rates. Other types of interestrate derivatives include eurostrips, swaptions and interest rate call options, to name just a few.

Reversible Swap
An exchange of cash flows that allows one counterparty to use ... 
Basis Rate Swap
A type of swap in which two parties swap variable interest rates ... 
Fixed Price
The leg of a swap that is based on an unchanging interest rate. ... 
Floating Price
The leg of a swap that is based on a fluctuating interest rate. ... 
Derivative
A security with a price that is dependent upon or derived from ... 
Interest Rate Call Option
An interest rate derivative in which the holder has the right ...

Professionals
What is a Derivative?
CFA Level 1  What is a Derivative?. Learn the basicas of derivative instruments. Covers various types of options, swaps and differentiates exchange and overthecounter trades. 
Options & Futures
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A derivative investment is one in which the investor does not own the underlying asset, but instead bets on the assetâ€™s price movement with another party. 
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Learn how to use this type of investment as an alternative way to participate in the market. 
Investing Basics
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Interestrate risk is the risk inherent in all bonds that the price of the bond will fluctuate with prevailing rates. 
Investing
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Investing
What Is A Derivative?
A derivative is a security whose price is dependent upon or derived from one or more underlying assets. Learn more on how investors can use this financial instrument in their trading strategies. 
Investing Basics
Top 6 Uses For Bonds
Individuals and institutions can use bonds in many ways: from the most basic, such as for preserving principal or saving and maximizing income, to more advanced uses, like managing interestrate ... 
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Make sure you understand the risks associated with bonds before making an investment decision. 
Investing Basics
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Interest rate risk stems from the possibility that an interestbearing assetâ€™s value will change due to changing interest rates. 
Investing Basics
How Are Interest Rate Swaps Valued?
When trading in financial markets, higher returns are generally associated with higher risk. Hedge your risk with interest rate swaps.

What is the difference between derivatives and swaps?
Find out more about derivative securities, swaps, examples of derivatives and swaps, and the main difference between derivative ... Read Answer >> 
How big is the derivatives market?
Examine the potential size of the total derivatives market, and learn how different calculations can reduce the estimate ... Read Answer >> 
Can individual investors profit from interest rate swaps?
Find out how individual investors can speculate on interest rate movements through interest rate swaps by trading fixed rate ... Read Answer >> 
How can an investor reduce interest rate risk?
Learn about the different ways investors can reduce interest rate risk. Locking in interest rates increases certainty for ... Read Answer >> 
What is an overthecounter derivative?
Learn more about overthecounter derivatives and how they work with an example of a derivative tradeoff exchange. Read Answer >> 
What is a derivative?
A derivative is a contract between two or more parties whose value is based on an agreedupon underlying financial asset, ... Read Answer >>