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a. What are the key steps in static GAP analysis?

a. What are the key steps in static GAP analysis? Explain the purpose of each step 

and how a bank would use such analysis.  

 

b. Consider the following bank balance sheet and associated average interest. The 

time frame for rate sensitive is one year. All monetary values are in thousands.

 

Assets Amount Rate Liabilities & Equity Amount Rate

Rate sensitive £94,900 3.4% Rate sensitive £85,300 0.70%

Fixed rate £151,300 4.2% Fixed rate £171,780 2.20%

Non-earning £19,000 Non-earning £6,320

Equity £1,800

Total £265,200 Total £265,200


 

 

a. Calculate the bank's GAP, expected NII, and NIM if interest rates and 

portfolio composition remain constant during the year. Explain how this 

bank is positioned to profit if interest rates move in which direction. 

b. Calculate the change in expected NII and NIM if the interest rates increase 

by 2% during the year. Assess if this outcome is consistent with the bank's 

static gap. 

c. Suppose that, instead of the parallel shift in interest rates in Part b, 

interest rates increase unevenly. Specifically, suppose that asset yields rise 

by 0.4% while liability rates rise by 0.65%. Calculate the change in NII and 

NIM and explain the outcome. 

 

c. What are the strengths and weaknesses of static GAP analysis and how can these 

be overcome by Senior Bank Management?


these questions are banking management questions, can you give me the detail and answers, thank you so much

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