Interest Rate Derivative

"The interest rate derivatives market is the largest derivatives market in the world."

An interest rate derivative is a derivative where the underlying asset is the right to pay or receive a notional amount of money at a given interest rate.

The Bank for International Settlements estimates that the notional amount outstanding in June 2009 were US$437 trillion for OTC interest rate contracts, and US$342 trillion for OTC interest rate swaps. According to the International Swaps and Derivatives Association, 80% of the world's top 500 companies as of April 2003 used interest rate derivatives to control their cashflows. This compares with 75% for foreign exchange options, 25% for commodity options and 10% for stock options.