Risk is either of increased funding cost for borrowers, or of reduced yields for investors. Short-term volatility and the unpredictability of interest rates led the banks and the financial exchanges to create ' an explosion' of financial instruments. Each of these instruments has a different set of characteristics for hedging interest rate risk on both loans and deposits, in different global currencies in both the short and long term.

The main choices facing a borrower or depositor are the following:

• Do nothing and wait.
• Fix the rate of interest by means of an option-type product, where a premium is due.
• Fix the rate of interest by means of a zero-premium product, such as an FRA or a future.