Consider a financial institution that holds a large bond portfolio against which they decide to sell bond futures to hedge. If interest rates fall, what will be the outcome of their futures hedge?

Select one:

The outcome on their futures hedge is unrelated to interest rate movements on their bond portfolio

They will make a profit on their futures contracts to offset a loss on their bond portfolio

They will lose money on their futures hedge which will be offset by gains on their bond portfolio

They will make a loss on both their futures contracts and on their large bond portfolio