Term
|
Definition
the dollar volume of rate sensitive assets (RSA's)financed with rate sensitive liabilities (RSL's)
GAP = RSA's - RSL's |
|
|
Term
| GAP Summary: If you want to aggressively seek profits |
|
Definition
1) If you expect interest rates to decrease, adjust your portfolio so that you have a GAP ratio less than one
2)If you expect interest rates to increase, adjust your portfolio so that you have a GAP ratio greater than one |
|
|
Term
| GAP Summary: If you want to be conservative |
|
Definition
| No matter what your expectations are with respect to interest rate movements, adjust your portfolio so that the GAP ratio is equal to one |
|
|
Term
| GAP Summary: Make sure you understand |
|
Definition
No matter what your expectations are with respect to interest rates or what your bent for taking risk is, interest rates are constantly changing in the market and cash is constantly coming in and leaving. Therefore, to pursue a
desired GAP objective, the financial institution
must continually be making adjustments in its portfolio. |
|
|
