<p>An Interest Rate Future is a derivative contract that allows investors to speculate on or hedge against changes in interest rates. It is an agreement to buy or sell a bond at a predetermined price and future date.</p>

<h2>How It Works</h2>
<p>Interest Rate Futures work on the principle of 'notional principal'. Here's how they operate:</p>
<ul>
  <li>Two parties agree to exchange a fixed amount of principal (notional principal) at a future date.</li>
  <li>The price of the future is determined by the interest rate, with a higher interest rate leading to a lower price and vice versa.</li>
  <li>At the contract's expiration, the parties exchange the notional principal, and any difference is settled in cash.</li>
</ul>

<h2>Why It Matters</h2>
<p>Interest Rate Futures play a crucial role in financial markets due to their ability to hedge against interest rate risk:</p>
<p><strong>Example:</strong> A bank expecting to borrow funds in six months can use an Interest Rate Future to lock in a borrowing rate today, protecting against potential rate increases.</p>