A planned issue of $20 million in BABs could be hedged by:

Question

Quizplus · Accepted Answer

To hedge the $20 million issue, the hedger should take a short position in BAB futures contracts. The number of contracts needed can be calculated as follows: 
Contract Value = $100,000
Total Value to be hedged = $20,000,000
Number of Contracts = Total Value to be hedged / Contract Value
= $20,000,000 / $100,000
= 200
Therefore, the hedger should take a short position in 200 BAB futures contracts. Option C is the only choice that suggests taking a short position in contracts. Options A and B suggest positions opposite to the one needed to hedge, and option D suggests taking a very small position (which would only hedge a fraction of the total value).

A Planned Issue of $20 Million in BABs Could Be