There are some significant limitations to financial futures as interest-rate hedging devices;among them is a special form of risk known as credit risk.

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Credit risk, or the risk that the counterparty will default on its obligations, is not a primary concern with financial futures because they are traded on exchanges that typically require participants to post margin and have clearinghouses that guarantee the trades, thus mitigating credit risk. The main risks associated with financial futures for interest-rate hedging are market risk and basis risk, not credit risk.

There Are Some Significant Limitations to Financial Futures as Interest-Rate