The TED spread is an indicator of :
A) expected defaults in the mortgage market.
B) expected inflation.
C) worries about the solvency of the banking system.
D) the ease or tightness of monetary policy.

Question

Quizplus · Accepted Answer

The TED spread is the difference between the interest rate on three-month U.S. Treasury bills and three-month Eurodollars futures contracts. It is used as an indicator of the perceived risk of default in the banking system because it measures the difference between the interest rates that banks are willing to lend to each other (Eurodollars) and the risk-free rate (Treasury bills). A widening TED spread indicates that banks are becoming more hesitant to lend to each other, suggesting concerns about the solvency of the banking system.

The TED Spread Is an Indicator of