Gap exposure
A business can have equal total financial assets and liabilities but still be exposed because their rates reset differently. A repricing gap groups relevant assets and liabilities by reset period and examines the net sensitivity. The effect of a rate change depends on which side resets and in what direction. Gap analysis simplifies actual behaviour and may omit embedded options or differing reference benchmarks. Basis risk is a separate mismatch between rates that may reset at the same time but do not move equally.
Worked example
A company earns floating interest on $3 million of deposits but pays floating interest on $5 million of borrowing, with both resetting now. A 1 percentage point rise increases annual interest received by $30,000 and paid by $50,000, reducing net income by $20,000 under the simple assumptions.
Common mistake
Netting assets and liabilities without checking reset dates, or treating gap exposure and benchmark basis risk as identical.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |