A bank has a $100 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

The Treasury bond futures contract on the Chicago Board of Trade is for $100,000 notional value, which means that each contract hedges $100,000 worth of bonds. To hedge a $100 million position, the bank would need to hold 1,000 contracts (100,000,000 / 100,000 = 1,000). Therefore, the correct answer is C, 1,000.

A Bank Has a $100 Million Mortgage Bond Risk Position