by which lenders and borrowers commit themselves to the interest rates at which they will lend or borrow specified sums on a specified future date. Firms that may suffer losses due to fluctuations in interest rates (such as banks, brokerage houses, insurance companies) use these contracts to hedge
(reduce risk). Speculators use these contracts to bet on lower or higher market interest rates in the future. These contract
are traded on financial futures
and options exchanges, and their value
rises and falls in an inverse proportion to the rise and fall in market interest rates.