This chapter analyzed the risk-management role of forwards, futures, options, and swaps. These (off-balance-sheet) derivative securities provide FIs with a low-cost alternative to managing risk exposure directly on the balance sheet. We first looked at the use of forwards and futures contracts as hedging instruments. We saw that while they are close substitutes, they are not perfect substitutes. A number of characteristics such as maturity, liquidity, flexibility, marking to market, and capital requirements differentiate these products and make one or the other more attractive to any particular FI manager. We next discussed the use of option-type contracts available to FI managers to hedge interest rate risk. In particular, we noted that the unique nature of the asymmetric payoff structure of option-type contracts often makes them more attractive to FIs than other hedging instruments such as forwards and futures. We then evaluated the role of swaps as risk-management vehicles for FIs. We analyzed the major types of swaps, such as interest rate and currency swaps. Swaps have special features of long maturity, flexibility, and liquidity that make them attractive alternatives relative to shorter-term hedging vehicles such as futures, forwards, and options. Finally, we outlined the regulatory procedures governing derivatives.