Suppose a company still has a loan of 1 million yuan that has not been repaid. The interest rate is reset every 6 months, and the interest repayment period is at the end of every 6 months. There are now only three months until the next rate reset, but the company expects rates to rise in the meantime. The current interest rate for these six months is 6%, and when signing the six-month forward interest rate agreement, the capital management department obtained a forward interest rate of 6.3%. After executing this agreement, the money management department locked the interest rate at 6.3%. If interest rates rise to 7% as expected, the company's interest expense will be lower because, although it will now pay interest at 7%, its forward rate agreement counterparties will pay it 7% versus 6.3% the interest difference between them. If the interest rate drops to 6%, then, despite the lower loan rate, the company will still pay interest at an effective rate of 6.0% and will need to pay the counterparty to the forward interest rate agreement the difference in interest between 6% and 6.3%.

The concentration of cash balances in subsidiaries helps avoid paying high interest rates on borrowings and also makes it easier to manage interest rate risk.

Interest rate futures Most futures contracts include interest rates, and these contracts provide a means of hedging the risk of interest rate changes, effectively betting that interest rates will rise or fall.

Interest rate options give the buyer the right, but not the obligation, to trade at an agreed interest rate (exercise price) on the future expiration date;

Interest rate guarantee: Hedging for a single period within one year. Interest rate options for the period;

Upper limit, lower limit and double limit: the upper limit refers to the maximum limit set for the interest rate, and the lower limit refers to the minimum limit set. Double limit is to set upper and lower limits at the same time.

Interest rate swap Interest rate swap refers to an agreement between two companies, or a company and a bank, to exchange interest rate commitments with each other.