A maturity gap is
the difference between the total market values of interest rate sensitive assets versus interest rate sensitive liabilities
that will mature or be repriced over a given range of future dates.
What is gap formula?
Formula and Calculation of the Interest Rate Gap
The interest rate gap is calculated as
interest rate sensitive assets minus interest rate sensitive liabilities
.
How do you calculate maturity gap?
The Maturity Gap measures the difference between a firm’s weighted average asset maturity (M
A
) and weighted average liability maturity (M
L
).
W
Ai
= (market value of asset i)/(market value of total assets)
. W
Li
= (market value of liability j)/(market value of total liab.)
What is the maturity gap for County Bank?
a. What is the maturity gap for County Bank? M
A
= [0*20 + 15*160 + 30*300]/480 = 23.75 years. M
L
= [0*100 + 5*210 + 20*120]/430 =
8.02 years
.
What is the cumulative gap?
One Year Cumulative Repricing Gap. The
cumulative amount of interest-sensitive assets repricing within one year less the amount of interest-sensitive liabilities scheduled to reprice within one year
. Negative if interest-sensitive liabilities exceed interest-sensitive assets.
What is a negative gap?
A negative gap is
a situation where a financial institution’s interest-sensitive liabilities exceed its interest-sensitive assets
. A negative gap is not necessarily a bad thing, because if interest rates decline, the entity’s liabilities are repriced at lower interest rates. In this scenario, income would increase.
What is the maturity gap psychology?
The fact that cognitive maturity (CM)
develops earlier and peaks sooner than emotional maturity (EM)
is called the “maturity gap.” The size of the gap is substantial—CM levels off for most people around age 16, but EM doesn’t level off until age 25 or 30.
Why is gap ratio important?
The purpose of calculating a gap ratio is
to gauge how well a business can withstand sudden fluctuations in interest rates
. A high number shows financial stability in light of possible interest rate fluctuations, while a low number shows financial instability.
What does gap analysis stand for?
A gap analysis is
the process companies use to compare their current performance with their desired, expected performance
. … A gap analysis is the means by which a company can recognize its current state—by measuring time, money, and labor—and compare it to its target state.
How do you close a gap time?
The quickest and simplest way to try and close this gap is
to match it with cash
. But matching with cash is inefficient. By simply moving a portfolio from diverse investment into pure fixed income is usually inappropriate for trying to match the duration gap.
What is repricing gap model?
The repricing gap model is
based on the consideration that a bank’s exposure to interest rate risk derives
from the fact that interest-earning assets and interest-bearing liabilities show differing sensitivities to changes in market rates.
What is duration gap in banking?
The duration gap is a financial and accounting term and is typically used by banks, pension funds, or other financial institutions to measure their risk due to changes in the interest rate. … The duration gap
measures how well matched are the timings of cash inflows (from assets) and cash outflows (from liabilities)
.
Why is it useful to express the repricing gap as a gap ratio?
Runoff in demand deposits in a repricing model is typically lower during periods of falling interest rates. The gap ratio is useful because
it indicates the scale of the interest rate exposure by dividing the gap by the asset size of the institution
.
Is Gap a management?
Gap management is
the administration of assets and liabilities in
an attempt to ensure the increase of a loan interest rate is balanced or offset by the increase in interest realized from the interest-earning investments.
How is the gap funded?
Funding gaps can be
covered by investment from venture capital or angel investors, equity sales, or through debt offerings and bank loans
. The term is most often used during the initial stages of research, product development, and marketing of early-stage companies.
What does a positive maturity gap mean?
A positive maturity gap indicates that
the bank holds more rate sensitive assets that rate sensitive liabilities for that interval
. A negative maturity gap indicates that the bank holds more interest rate sensitive liabilities that will be due during that interval.
