Interest Rate Gap

Definition of 'Interest Rate Gap'


The difference between fixed rate liabilities and fixed rate assets. Interest rate gap is a measurement of exposure to interest rate risk. The interest rate gap is used to show the risk of exposure and is used by financial institutions and investors to develop hedge positions, often through the use of interest rate futures. Calculations are dependent on the maturity date of the securities used in calculations, and the time period remaining before the securities reach maturity.

Interest rate gaps can also apply to the interest rates on the government securities of two different countries.

Investopedia explains 'Interest Rate Gap'


Unlike the liquidity gap, which takes into account all assets and liabilities, the interest rate gap only focuses on assets and liabilities which have a fixed rate. For example, a bank may borrow $100 million for 30 days at 5% interest, while at the same time loaning out $100 million for 60 days at 5.5%. An interest rate gap calculation would allow the bank to determine its 30v60 day forward rate.



comments powered by Disqus
Hot Definitions
  1. Identity Fraud Reimbursement Program

    A financial product that offers reimbursment for the costs associated with having been a victim of identity theft. These costs may include getting affidavits notarized for police and financial institutions, postage for sending certified mail to police and financial institutions, lost earnings resulting from time spent recovering one's identity, and legal fees.
  2. Cash and Carry Transaction

    A type of transaction in the futures market in which the cash or spot price of a commodity is below the futures contract price. Cash and carry transactions are considered arbitrage transactions.
  3. Amplitude

    The difference in price from the midpoint of a trough to the midpoint of a peak of a security. Amplitude is positive when calculating a bullish retracement (when calculating from trough to peak) and negative when calculating a bearish retracement (when calculating from peak to trough).
  4. Ascending Triangle

    A bullish chart pattern used in technical analysis that is easily recognizable by the distinct shape created by two trendlines. In an ascending triangle, one trendline is drawn horizontally at a level that has historically prevented the price from heading higher, while the second trendline connects a series of increasing troughs.
  5. National Best Bid and Offer - NBBO

    A term applying to the SEC requirement that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities.
  6. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
Trading Center