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Interest rate swaps are widely recognized as effective instruments for hedging against fluctuations in LIBOR (London Interbank Offered Rate). This is mainly due to their structure, which allows two parties to exchange interest rate cash flows based on a specified principal amount. Typically, one party pays a fixed interest rate while receiving a floating rate, usually tied to LIBOR. By entering into an interest rate swap, a company or institution can manage its exposure to interest rate risk, particularly when dealing with variable-rate debt or investment instruments referenced to LIBOR. This helps to stabilize cash flows and predict future financing costs, thereby effectively mitigating the risk of increasing interest rates.

The other options, while also important financial tools, do not directly address LIBOR fluctuations in the same way. Forward contracts generally deal with the future price of assets or currencies but are not specifically tailored for interest rate movements. Currency swaps focus on exchanging principal and interest payments in different currencies, which does not directly hedge against LIBOR. Commodity futures relate to the price of physical goods and do not connect to interest rates or LIBOR fluctuations. Therefore, interest rate swaps stand out as the most relevant and effective instrument for this hedging purpose.