DEFINITION of 'Static Gap'
A measure of exposure or sensitivity to interest rates. Static gap is calculated as the difference between assets and liabilities of comparable repricing periods. Static gap can be calculated for shortterm and longterm periods. Minus signs in the calculated gap indicate that you have a greater number of liabilities than assets maturing at that particular maturity, and therefore have an exposure to rising rates.
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BREAKING DOWN 'Static Gap'
Static gap is usually calculated for periods of less than a year – often 0 to 30 days or 31 to 90 days – but can also be calculated for multiple periods. Simple static gaps are inherently imprecise measurements because they do not take into account such factors as interim cash flow, average maturity and prepayment of the loan.
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