A savings and loan with interest rate-sensitive liabilities and interest rate insensitive assets (i.e., negative GAP) might swap future fixed rate interest payments for variable rate interest payments.

Question

Quizplus · Accepted Answer

A savings and loan with a negative GAP is exposed to interest rate risk, as liabilities are more sensitive to interest rate changes than assets. By swapping fixed rate payments for variable rate payments, they can better match the sensitivity of their liabilities, reducing risk.

A Savings and Loan with Interest Rate-Sensitive Liabilities and Interest