What does Mismatch Risk mean?
Mismatch risk is the risk that investment does not match with the investor’s objectives. The investment is not appropriate and consistent for investor’s needs.
Futures Knowledge Explains Mismatch Risk
A poor financial planning may result into mismatch risk. This is a situation when an investor has made investments in the various instruments that are not suitable for him. His portfolio may not meet the desired financial goals.
Similarly, if a bank which has mainly short term deposits invests in long term mortgages, cash inflow may not match cash outflow. The bank carry mismatch risk.
In futures markets also, sometimes a swap dealer is unable to find an appropriate counterparty for a swap transaction where it is acting as the intermediary.