Question #3
Reading: Reading 25 The Term Structure and Interest Rate Dynamics
PDF File: Reading 25 The Term Structure and Interest Rate Dynamics.pdf
Page: 1
Status: Correct
Correct Answer: A
Question
Credit risk in the banking system is most accurately captured by the:
Answer Choices:
A. I-spread
B. 10-year swap spread
C. TED spread
Explanation
Comparing the TED spread with the 10-year swap spread, the TED spread more accurately
reflects the risk in the banking system, while the 10-year swap spread mostly reflects
differing supply and demand conditions. An I-spread refers to a bond yield net of the swap
rate of the same maturity.