Interest-rate matching
Interest-rate matching seeks to offset interest income against interest expense so exposure remains on the net position rather than both gross amounts. Matching is more effective when principal amounts, currencies, reference rates and reset dates align; differences create residual gap or basis exposure. The technique can be difficult for a business whose borrowing greatly exceeds its interest-earning deposits. It differs from matching foreign-currency operating receipts and payments, although both involve offsetting compatible cash flows.
Worked example
A business earns floating interest on $2 million of deposits and pays the same floating benchmark on $3 million of debt, with identical reset dates. Ignoring margins, a 1 percentage point rise increases annual income by $20,000 and expense by $30,000, leaving a $10,000 net increase in cost.
Common mistake
Assuming equal nominal amounts eliminate risk when rates, reset dates or currencies differ, or confusing the technique with matching foreign-currency invoices.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |