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

One Treasury bond futures contract represents a notional amount of $100,000, so the bank needs to hedge $50,000,000 / $100,000 = 500 contracts.

A Bank Has a $50 Million Mortgage Bond Risk Position