Suppose that your bank buys a T-bill yielding 4% that matures in six months and finances the purchase with a three-month time deposit paying 3%. The purchase price of the T-bill is $3 million financed with a $3 million deposit. What is the six-month and three-month GAP associated with this transaction? Which is a better GAP measure of the bank’s risk?

    Six months GAP

    Attention perceptive Asset = $ 3 mn T – bills maturing in 6 months

    Attention perceptive jurisdiction = $ 3mn age deposits rolled aggravate succeeding 3 months control direct three months

    Hence, six months GAP = Attention perceptive asset – attention perceptive jurisdiction = $ 3mn – $ 3 mn = 0

    Three months GAP

    Attention perceptive Asset = 0 (this is owing T – bills are maturing in 6 months)

    Attention perceptive jurisdiction = $ 3mn age deposits

    Hence, six months GAP = Attention perceptive asset – attention perceptive jurisdiction = 0 – $ 3 mn = – $ 3 mn

    Reform mete

    The bank is really having asset jurisdiction manliness antagonist. It has an asset that succeed confirmed in 6 months age eraliness jurisdiction succeed confirmed in three months age. Six months GAP fall to stop this as it shows a GAP of 0, eraliness three months GAP stops this adequately which shows a GAP of – $ 3mn. Hence, three months GAP is a reform mete of bank’s surrender.