The number of futures contracts that a bank will need in order to fully hedge its overall interest rate risk exposure and protect the net worth depends upon (among other factors):

Question

Quizplus · Accepted Answer

The number of futures contracts needed for a bank to hedge its interest rate risk depends on the relative duration of its assets and liabilities (to understand the sensitivity of its net worth to interest rate changes), the duration of the underlying security in the futures contract (to match the hedge to the risk profile), and the price of the futures contract (which affects the cost and financial feasibility of the hedge).

The Number of Futures Contracts That a Bank Will Need