The number of futures contracts that an FI should buy or sell in a macrohedge depends on the
A)size of its interest rate risk exposure.
B)direction of its interest rate risk exposure.
C)return risk trade-off from fully hedging that risk.
D)return risk trade-off from selectively hedging that risk.
E)All of the options.

Question

Quizplus · Accepted Answer

The number of futures contracts that an FI should buy or sell in a macrohedge depends on the size and direction of its interest rate risk exposure, as well as the return risk trade-off from fully hedging or selectively hedging that risk. Therefore, all of the options listed are important considerations when deciding how many futures contracts to trade.

The Number of Futures Contracts That an FI Should Buy