A bank has a $50 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 typically represents $100,000 in face value. To hedge a $50 million position, you would divide $50,000,000 by $100,000, resulting in 500 contracts needed for the hedge.

A Bank Has a $50 Million Mortgage Bond Risk Position