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 has a notional value of $100,000. To hedge a $80 million mortgage bond risk position, the bank needs to sell $80 million/ $100,000 = 800 futures contracts. Therefore, the best choice is C) 800.

A Bank Has a $80 Million Mortgage Bond Risk Position