Question: A company is hedging with futures contracts using a duration-based hedge ratio. The company is determining the number of futures contracts that need to be

A company is hedging with futures contracts using a duration-based hedge ratio.

The company is determining the number of futures contracts that need to be purchased in order to hedge and cover all risk safely.

For what level of changes in interest rates will the company set the number of contracts purchased, so that the change in value of the futures position will offset the change in value of the spot position?

Question 15 options:

a)Small changes in interest rates

b)Any change in interest rates

c)Large changes in interest rates

d)Changes in interest rates that do not exceed a predetermined level

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