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Interest rate futures contracts are financial derivatives that are used to hedge against fluctuations in interest rates. They are a type of futures contract where the underlying asset is a debt security, such as a treasury bond, that pays a fixed rate of interest.

Interest rate futures contracts are traded on exchanges such as the Chicago Mercantile Exchange (CME) and the Intercontinental Exchange (ICE). They are an important tool for banks, financial institutions, and traders who want to hedge their exposure to changes in interest rates.

A futures contract is an agreement between two parties to buy or sell an underlying asset at a predetermined price at a future date. In the case of interest rate futures, the underlying asset is a debt security, and the price is based on the interest rate paid by that security.

For example, if a buyer enters into a futures contract to purchase a treasury bond at a fixed interest rate, they are protected against any increase in interest rates between the time they enter into the contract and the time the contract expires. Conversely, if the buyer expects interest rates to decrease, they could enter into a futures contract to sell a treasury bond at a higher interest rate, protecting themselves against any decrease in interest rates.

Interest rate futures contracts can also be used for speculation, as traders try to profit from fluctuations in interest rates. However, this can be a risky strategy as interest rates can be volatile, and predicting the direction of interest rates is difficult.

In conclusion, interest rate futures contracts are an important financial instrument used to hedge against fluctuations in interest rates. They provide a way for banks, financial institutions, and traders to manage their exposure to interest rate risk and protect against unexpected changes in interest rates. However, as with any financial instrument, understanding the risks involved is essential before entering into an interest rate futures contract.

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