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Hi sir,
Can you please explain me the difference between this two and how can we do in real life.Thanks in advance.
Thanks
Gap exposure has nothing to do with basis risk.
If you borrow money you will pay interest, and if you have money on deposit you will receive interest. The interest banks pay on deposits is lower than the interest that they charge on borrowings (because they make a profit on the difference). That is what the gap is, and if interest rates overall go up then this gap/difference gets bigger.
(Basis risk is something completely different – it is the difference between the actual interest rate and the equivalent interest rate on the future. I would not worry too much about that ?
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