Interest Rate Derivatives Markets

Abstract

There are today, many different interest rates, and since this can be confusing for newcomers to the area, we will spend some time discussing the various types; we will concentrate only on a small number of them, which will form the building blocks for the derivatives markets. The money market has become the predominant source for providing liquidity funding for financial institutions, and allows them to manage their operational cash requirements up to a time horizon of one year. Various instruments exist, such as deposits, certificates of deposits, commercial papers, bills and repurchase agreements. To learn more about all these short-term instruments, the reader is referred to Choudhry (2010).