off-balance-sheet interest arbitrage will also have to consider how to measure and control basis risk (where, for example, the underlying obligations have the same maturity or interest rate roll-over periods, but the reference rates differ). Foreign exchange risk 15. Off-balance-sheet activities have a significant impact on banks foreign exchange The off-balance sheet activities are in many instances part o the common business of banking , and not necessarily intended to avoid the regulations as argued by my friend Mo Chaudhury of McGill ... While on-balance sheet financing is any form of direct debt or equity funding of a firm, which is included in the company’s balance sheet, off-balance sheet financing is any form of funding that avoids placing owners’ equity, liabilities or assets on... Off-balance sheet financing is a legitimate, permissible accounting method recognized by Generally Accepted Accounting Principles, or GAAP, as long as GAAP classification methods are followed. This form of financing is nearly always debt financing, so the debt does not appear as a liability on the balance sheet.