Hello BobM, 1) The process through which a company compares its actual performance to its expected performance to determine whether it is meeting expectations and using its resources effectively. Gap analysis seeks to answer the questions "where are we?" (current state) and "where do we want to be?" (target state). 2) A method of asset-liability management that can be used to assess interest rate risk or liquidity risk excluding credit risk. Gap analysis is a simple IRR measurement method that conveys the difference between rate sensitive assets and rate sensitive liabilities over a given period of time. This type of analysis works well if assets and liabilities are compromised of fixed cash flows. Because of this a significant shortcoming of gap analysis is that it cannot handle options, as options have uncertain cash flows. |
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