Interest-Rate Derivative

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Dictionary Says

Definition of 'Interest-Rate Derivative'

A financial instrument based on an underlying financial security whose value is affected by changes in interest rates. Interest-rate 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 interest-rate derivatives as a speculative tool - they hope to profit from their guesses about which direction market interest rates will move.
Investopedia Says

Investopedia explains 'Interest-Rate Derivative'

A plain vanilla interest-rate swap is the most basic type of interest-rate 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 interest-rate derivatives include eurostrips, swaptions and interest rate call options, to name just a few.
Search results for

'Interest-Rate Derivative'

  • Managing Interest Rate Risk

    http://www.investopedia.com/articles/optioninvestor/08/manage-interest-rate-risk.asp
    ... risk. This article examines the management of interest rate risk with the
    use of various interest rate derivative instruments. (For ...

  • CFA Level 1 Study Guide - Derivatives - What is a Derivative? ...

    http://www.investopedia.com/exam-guide/cfa-level-1/derivatives/what-is-a-derivative.asp
    ... 15. Derivatives: 15.1 Introduction; 15.2 What is a Derivative? ... American Options and
    Moneyness; 15.28 Exchange Traded Options; 15.29 Interest Rate Options vs. ...

  • How do companies benefit from interest rate and currency swaps?

    http://www.investopedia.com/ask/answers/06/benefitsofswaps.asp
    ... How do companies benefit from interest rate and currency swaps? ... However, in an interest
    rate swap, the principal amount is not actually exchanged. ...

  • Introduction To Counterparty Risk

    http://www.investopedia.com/articles/optioninvestor/11/understanding-counterparty-risk.asp
    ... Because derivative contracts are bilateral and reference notional amounts which
    are insufficient ... If we use the interest rate swap, four basic steps are involved ...

  • A Guide To Real Estate Derivatives

    http://www.investopedia.com/articles/optioninvestor/08/real-estate-derivative.asp
    ... Derivatives, such as loan swaps, provide the swap party with both the interest rate
    and credit risk, while the asset (a commercial real estate loan) remains on ...

  • Careers In The Derivatives Market

    http://www.investopedia.com/articles/financialcareers/08/derivatives-career.asp
    ... Types of Derivatives Derivative instruments can be traded either on an exchange ...
    Debt/interest rate derivatives would be the Treasury complex on the Chicago ...

  • How Companies Use Derivatives To Hedge Risk

    http://www.investopedia.com/articles/stocks/04/122204.asp
    ... adverse foreign-exchange or interest-rate movements and unexpected increases in
    input costs. The investor on the other side of the derivative transaction is ...

  • An In-Depth Look At The Swap Market

    http://www.investopedia.com/articles/trading/11/introduction-swap-market.asp
    ... To Options Greeks Introduction to Swaps A swap is a derivative instrument that ... be
    less predictable, such as cash flows based on an interest rate benchmark or a ...

  • An Introduction To Swaps

    http://www.investopedia.com/articles/optioninvestor/07/swaps.asp
    ... contract is initiated, at least one of these series of cash flows is determined
    by a random or uncertain variable, such as an interest rate, foreign exchange ...

  • Immunization Inoculates Against Interest Rate Risk

    http://www.investopedia.com/articles/financial-theory/09/bond-interest-rate-immunization.asp
    ... between assets and liabilities = Bond principal or payment e = Interest rate risk
    PV = present value calculation. We then take another derivative in order to ...

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