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Posted on Oct 04, 2024

Suppose that your bank buys a T-bill yielding 4% that matures in six months and finances the purchase with a three-month time deposit paying 3%.

Suppose that your bank buys a T-bill yielding 4% that matures in six months and finances the purchase with a three-month time deposit paying 3%. The purchase price of the T-bill is $3 million financed with a $3 million deposit.

What is the six-month and three-month GAP associated with this transaction? Which is a better GAP measure of the bank's risk?

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