MANAGEMENT

Detailed explanation-1: -A negative gap, which is an interest rate gap that is less than one, is when rate-sensitive liabilities are greater than rate-sensitive assets, while a positive gap, which is greater than one, is the opposite.

Detailed explanation-2: -If a bank has more rate-sensitive assets than liabilities, then an increase in interest rates will increase the bank’s interest income. So, an increase in interest rates will boost bank profits.

Detailed explanation-3: -It is not uncommon for interest rates to adjust in an unequal manner on RSAs versus RSLs. Interest rates often do not adjust solely because of market pressures. In many cases the changes are affected by decisions of management.

Detailed explanation-4: -Interest rate risk is measured by calculating maturity gaps. The gap is defined as the absolute difference between the rate of sensitive assets (RSA) and the rate of sensitive liabilities (RSL) (Vij, 2005).