The difference between the three-month interbank loan interest rate and the interest rate on short-term U.S. government debt is the:
A)risk-free rate.
B)federal funds rate.
C)MP curve.
D)TED spread.

Question

Quizplus · Accepted Answer

The difference between the three-month interbank loan interest rate and the interest rate on short-term U.S. government debt is commonly known as the TED spread. It is an indicator of perceived credit risk in the economy and can be used to gauge the level of liquidity available in the financial system. Option A is incorrect because the risk-free rate is typically measured by the yield of short-term government debt. Option B, federal funds rate, refers to the interest rate at which banks lend and borrow reserves from each other overnight, not the difference between two other interest rates. Option C, the MP curve, refers to the relationship between short-term interest rates and the level of economic activity and is not directly related to the TED spread.

The Difference Between the Three-Month Interbank Loan Interest Rate and the Interest