Banking Practice Exam

Question: 1 / 400

What does a bank's periodic GAP measure?

Rate-sensitive assets compared to liabilities over time

Dollar amounts of earning assets during a specified time frame

Rate-sensitive assets and liabilities across a specific time bucket

A bank's periodic GAP (Gap Analysis) measures the difference between rate-sensitive assets and liabilities across specific time buckets. This analysis is crucial for assessing a bank's interest rate risk. By analyzing the GAP, banks can determine how much their assets and liabilities will react to changes in interest rates over set periods, typically categorized into time buckets such as 0-30 days, 31-90 days, etc.

This focus on specific time intervals allows banks to strategize around interest rate changes, as a positive GAP indicates that rate-sensitive assets exceed rate-sensitive liabilities, potentially benefiting from rising interest rates. Conversely, a negative GAP suggests that liabilities outstripped assets, which could pose challenges if interest rates were to rise.

The other options, while related to banking concepts, do not accurately capture the specific function of periodic GAP analysis. For example, measuring dollar amounts of earning assets or total liabilities against fixed-rate assets does not directly relate to the analysis of rate sensitivity over time, which is the essence of GAP measurement.

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Total liabilities versus fixed-rate asset levels

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