Static gap

Static gap,

Definition of Static gap:

  1. Static gap is usually calculated for periods of less than a year – often 0 to 30 days or 31 to 90 days – but can also be calculated for multiple periods. Simple static gaps are inherently imprecise measurements because they do not take into account such factors as interim cash flow, average maturity, and prepayment of the loan.

  2. Static gap is a measure of exposure or sensitivity to interest rates, calculated as the difference between assets and liabilities of comparable repricing periods. It can be calculated for short-term and long-term time periods. Minus signs (or a negative value) in the calculated gap indicates that you have a greater number of liabilities than assets maturing at that particular maturity, and therefore have exposure to rising rates.

  3. The difference between the amount of assets and liabilities in a given period. A negative sign in the gap indicates more liabilities than assets which in turn, creates greater exposure to rising interest rates. However, the measure is considered to be inexact as it does not take into account other factors such as average maturity, loan prepayment and interim cash flows.

Meaning of Static gap & Static gap Definition