How to choose best Contract for a hedge

• Contract expiration is the same as desired hedging period: Removing the basis risk.
• High correlation of futures price with price of hedged asset: So the Yield Beta is fairly predictable. (In most of the exam question case, yield beta is assumed to be 1.0)
• A liquid contract
• Important because the hedge may require many contracts or early termination or rollover.
• For Bond and Stock portfolios, future contracts are typically used, due to it's higher liquidity.
• For Currency hedging, although future contracts are available as well, typically forward contracts are used.