Interest rate derivatives The need for a well developed interest rate derivatives market cannot be overemphasised in providing effective hedging tools for interest rate risks present in the balance sheet and in facilitating trading based on two-way view on interest rates, which is not possible in the underlying cash market in the absence of short selling.
Based on my own experience, the overarching challenge that was faced by major central banks in terms of their response to the recent financial crisis can be captured with two insights.