A savings and loan with interest rate-sensitive liabilities and interest rate insensitive assets (i.e., a negative GAP) might swap future fixed rate interest payments to receive variable rate interest payments to reduce its risk.

Question

Quizplus · Accepted Answer

By swapping future fixed rate interest payments for variable rate interest payments, a savings and loan with a negative GAP (more interest rate-sensitive liabilities than assets) can align its interest income with its interest expenses, thereby reducing its exposure to interest rate fluctuations and mitigating its risk.

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