A bank has a $80 million mortgage bond risk position which it hedges in the Treasury bond futures markets at the Chicago Board of Trade.Approximately how many contracts are needed to be held in the hedge?

Question

Quizplus · Accepted Answer

Each Treasury bond futures contract covers a notional value of $100,000, so the bank needs to hold 800 contracts in the hedge to cover its $80 million mortgage bond risk position ($80 million divided by $100,000 per contract equals 800 contracts).

A Bank Has a $80 Million Mortgage Bond Risk Position