The interest rate spread is the difference between
A) a nominal rate and a real rate of interest.
B) a benchmark rate and the effective lower bound.
C) a benchmark rate and a related market interest rate.
D) the key policy rate and the official interest rate
E) the upper and lower bound of the operating band.

Question

Quizplus · Accepted Answer

The interest rate spread is typically the difference between a benchmark interest rate (such as the prime rate) and a related market interest rate (such as the rate on a 10-year Treasury bond). This spread can be seen as a measure of the risk premium that investors demand for holding securities with greater credit risk or longer maturities. Option A refers to the difference between nominal and real interest rates, Option B refers to the range of interest rates set by a central bank, Option D refers to different policy rates, and Option E refers to the range within which a central bank conducts its monetary operations.

The Interest Rate Spread Is the Difference Between