An interest rate derivative is a financial contract whose value is derived from the future movements of interest rates. These instruments are commonly used by businesses and investors to manage or hedge against the risk of fluctuating interest rates. Examples include interest rate swaps and interest rate options, which allow parties to exchange cash flows based on different interest rate benchmarks. These derivatives can help organizations stabilize their borrowing costs or enhance returns on investments. By locking in interest rates or speculating on future changes, users can better navigate the complexities of the financial markets and protect themselves from potential losses due to rate volatility.