This is a relatively simple introduction to the sort of interest rate-based instruments available to both banks and corporates to enable them to manage interest rate risk. Other more exotic instruments include the following:
Swaptions. Swaptions give the holder the right but not the obligation to enter into a future defined swap agreement.
Interest rate swap futures. These are futures contracts in which the underlying instrument is the value of a specified interest rate swap contract.
Basis spread contracts. It is possible to trade futures contracts based on basis spreads,
for example on the spread between two benchmark rates such as those from an interbank market and those from government bonds.
Bond indices futures contracts. A relatively few standardized bond indices exist on which it is possible to trade futures contracts.
Caps and collars. It is possible to create a number of different positions based on combinations of call and put options.
Strips and synthetic zeroes. Investment banks can create a variety of synthetic products based on actual or notional coupon bonds. A government coupon bond can be used to create two securities. The first security entitles the holder to the coupon payments only, these securities are referred to as strips. The second makes no coupon payments but has the structure of a zero coupon bond.