Interest Rate Derivative

Interest-rate derivatives is an umbrella term to describe an array of products – swaps, options, swaptions, caps, floors, forwards and futures -- whose underlyings are interest-rate products. In an interest-rate swap (IRS), for example, one leg of the contract is a fixed interest rate and other is a floating interest rate (traditionally Libor). In an IRS, counterparties enter into a contract to exchange fixed and floating cash flows for the life of the swap.