According to Sinkey(2002), applying gap management techniques to ensure a profitable asset

structure based on sensitivity of operations against interest rate fluctuations and comparing
the terms of asset and liability maturity. Each time of the period can hedge by bank as the
following formula

Rate Sensitive Assets (RSA) = Rate Sensitive Liabilities (RSL)

The bank will only renew if it can get an expected yield that higher then current yield
If the interest rate increases since the first loan is made, the bank will renew it only if it is able
to obtain the expected returns that are approaching the higher yields currently expected on other
financial instruments that are at par with the quality.

Interest Sensitive Gap:

A gap exists between these interest sensitive assets and interest sensitive liabilities when
Interest Sensitive Gap = Interest Sensitive Assets Interest Sensitive Liabilities.

Bank will have a positive gap and become asset sensitive when the interest sensitive assets
exceeds the amount of sensitive sensitive liability. In this case if the interest rate rises, the
bank's net interest margin will increase as interest income generated by bank assets will
increase more than the cost of borrowed funds and vice versa. While when bank have a
negative gap and sensitive liabilities which means that interest-sensitive assets - interest-
sensitive liabilities <0 .In this case, interest rate hike will lower the net interest margin of the
bank, as the increase in associate costs with interest-sensitive liabilities will exceed the
increase in interest income from the bank's earning assets and vice versa. As a practical
matter, however, the zero gap does not eliminate all interest rate risk, since the interest rates
attached to the assets and liabilities of the bank are not real-world in nature. The zero gap is
also impossible.