Banking Practice Exam 2025 - Free Banking Practice Questions and Study Guide

Conducting a Static GAP analysis focuses on assessing interest rate risk by analyzing the timing differences between a financial institution's assets and liabilities. The analysis typically involves determining how changes in interest rates can affect net interest income and carrying out a structured approach to measure rate sensitivity.

The selection of sequential time intervals for determining rate sensitivities is crucial, as this helps categorize the cash flows of assets and liabilities into specific timeframes. Grouping assets and liabilities into time "buckets" is another fundamental step that allows for an organized view of exposure to interest rate shifts over those intervals. Additionally, forecasting changes in net interest income across various interest rate scenarios enables institutions to project possible outcomes based on different rate environments, providing valuable insights for risk management.

In contrast, evaluating the impacts of previous rate changes on market conditions does not fall within the standard procedure of Static GAP analysis. This step leans more towards historical analysis rather than assessing future rate sensitivity and does not directly pertain to the immediate assessment of interest rate risk inherent in a Static GAP analysis.