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.

BREAKING DOWN '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.

RELATED TERMS
  1. Liquidity Gap

    The difference between a firm's assets and a firm's liabilities, ...
  2. Gapping

    In general, a trading strategy in which the participant borrows ...
  3. Static Gap

    A measure of exposure or sensitivity to interest rates. Static ...
  4. Gap

    A break between prices on a chart that occurs when the price ...
  5. Dynamic Gap

    Refers to asset and liability risk management at financial institutions. ...
  6. Common Gap

    A price gap found on a price chart for an asset. These gaps are ...
Related Articles
  1. Trading

    Know How To Manage Gaps On Your Trading Strategy

    Gaps generate profitable strategies right after they print, as well as during retracements that test those levels, often months or years later.
  2. Trading

    Playing The Gap

    Learn how you can earn money by analyzing the disruptions in normal price patterns.
  3. Investing

    Gap Strategies To Try For Intraday Trades

    Many traders lack effective strategies to manage gaps, whether they pop up on open positions or mark the first play of the day. These strategies may help.
  4. Insights

    Gap Trades Higher Despite Decline in Sales (GPS)

    Gap had disappointing sales this May but their stock price still rose.
  5. Trading

    Analyzing The Market With Trend Mirrors

    Past price action can exert a powerful influence on current rallies and selloffs.
  6. Investing

    Should Investors Squeeze Into The Gap?

    The Gap is closing stores and conducting layoffs. Will investor panic lead to opportunity?
  7. Trading

    Managing Interest Rate Risk

    Interest rate risk stems from the possibility that an interest-bearing asset’s value will change due to changing interest rates.
  8. Insurance

    Steer Clear of Over-Priced Gap Insurance Providers

    Major insurers will generally give you a better deal on gap insurance than a car dealership. But watch for gaps in gap coverage.
  9. Insights

    Gap Inc. Down 11% After Disappointing April Sales (GPS)

    Gap Inc. has fallen 11% after news that its April and Q1 sales are much weaker than expected.
RELATED FAQS
  1. How are Sanku (Three Gaps) patterns interpreted by analysts and traders?

    Find out how analysts and traders interpret a Sanku, or three gaps, pattern located within a bar chart or Japanese candlestick ... Read Answer >>
  2. What are the main differences between a Runaway Gap and a Exhaustion Gap?

    Discover the primary differences between runaway and exhaustion gaps, and see why gap differentiation depends on subsequent ... Read Answer >>
  3. What are the main differences between Exhaustion Gaps and Breakaway Gaps?

    Read about the primary differences between two types of price chart gaps – breakaway and exhaustion – and how traders react ... Read Answer >>
  4. How are Runaway Gap patterns interpreted by analysts and traders?

    Find out what runaway gaps mean in a price chart and how traders and technical analysts interpret them differently than other ... Read Answer >>
  5. How do I build a profitable strategy when spotting an Exhaustion Gap?

    Learn potentially very profitable trading strategies traders use to take advantage of a market reversal after identifying ... Read Answer >>
  6. How are Exhaustion Gap patterns interpreted by analysts and traders?

    Learn how to spot and interpret exhaustion gap patterns like traders and analysts do, and see why these patterns are considered ... Read Answer >>
Hot Definitions
  1. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  2. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  3. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  4. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  5. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center