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An IRF is a contract between a buyer and a seller agreeing to the future delivery of any interest-bearing asset such as government bonds.
The cash-settled IRFs provide market participants with an option to hedge risks arising from fluctuations in interest rates, which depend on various factors, including the RBI policy, demand for liquidity and flow of overseas funds.
"Interest rates futures contracts based on 7.17 per cent government bonds, maturing on January 8, 2028 will be made available for trading with effect today, " the circulars from the exchanges said.
Banks, primary dealers, mutual funds, insurers, FIIs, corporates and brokers, as well as retail investors trade in this product.