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 covers a $100,000 face value bond, so to hedge a $50 million position, the bank would need to hold 500 contracts (50,000,000/100,000 = 500).

A Bank Has a $50 Million Mortgage Bond Risk Position