A bank with a negative repricing gap could enter into a swap to pay a fixed rate of interest and receive a variable rate of interest to effectively reduce its repricing gap.

Question

Quizplus · Accepted Answer

A bank with a negative repricing gap would benefit from entering into an interest rate swap where it pays a fixed rate of interest and receives a variable rate of interest, which effectively reduces its repricing gap. This is because the bank's cash inflows (from receiving the variable rate of interest) will increase when interest rates rise, which offsets the higher cash outflows (due to paying the fixed rate of interest) that result from a negative repricing gap.

A Bank with a Negative Repricing Gap Could Enter into a Swap