Focus Of The GAP And Duration GAP In Commercial Banking

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Economics

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Discussion following question, every question must be at least 350 words. Use your own words, please do not copy

1. Focus of GAP and Duration Gap and which is more inclusive.

2. Major types of funding for a commercial bank. Chapter 10

3. Meeting Legal Reserve Requirements. Chapter 11

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1. Focus of GAP and Duration Gap and which is more inclusive.
A GAP analysis usually is an assessment method used to evaluate the performance
difference software application or the information systems of an organization to determine
whether the organization’s requirements are successfully met, if they are not, then steps to be
taken are determined in order to assure success. “Gap” is used to refer to the difference between
the current state of an organization and the target state of the organization.
The Duration gap is usually an accounting and a financial term typically used by other
financial institutions, pension funds and banks for their risk measurement as a result of the
interest rate changes. Which is among the discrepancies that may occur and is also referred to as
discrepancies in asset liabilities. Duration gap can also be defined as the difference between
interest-bearing assets price sensitivity and liabilities price sensitivity of an organization to
change in interest rates in the market. It measures cash inflow timing from assets and outflows
from liabilities.
In general, GAP analysis examines the differences between a bank’s variable rate dollar
value and the liability variable rate of dollar value. While the Duration gap is an analysis of the
sensitivity to changes in the interest rate in the market of the bank’s capital. The purpose of gap
analysis is to determine the sensitivity of the bank to movements in interest rates. Whereas the
purpose of the long - term analysis is to determine the liquidity risk sensitivity of the bank. The
purpose of both analyzes is to determine the sensitivity of the bank to interest rate movements
The strength in the analysis of duration gap is the focus on market value sensitivity and the fact

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that the analysis of EVE is a comprehensive view of the risk over the entire range of cash flows
and maturities. The GAP earnings sensitivity model highlights the effects of the statement of
short-term income. The sensitivity analysis of DGAP / EVE emphasizes the effects of long-term
market value. Both models are struggling to estimate when embedded options will be exercised
an...


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