A mortgage banker had made loan commitments for $10 million in 3 months. How many contracts on Treasury bonds futures must the banker write or buy?

Question

Quizplus · Accepted Answer

To hedge against interest rate increases, the mortgage banker would go long on Treasury bond futures. Each contract typically represents $100,000 of the underlying bond, so to cover $10 million, the banker would need to go long on 100 contracts.

A Mortgage Banker Had Made Loan Commitments for $10 Million