Question #63
Reading: Reading 25 The Term Structure and Interest Rate Dynamics
PDF File: Reading 25 The Term Structure and Interest Rate Dynamics.pdf
Page: 26
Status: Unattempted
Correct Answer: B
Question
When the yield curve is downward sloping, the TED spread is most likely to be:
Answer Choices:
A. zero
B. positive
C. negative
Explanation
TED spread is defined as MRR minus T-bill yield and is expected to be positive to reflect
the higher credit risk implied in MRR relative to T-bills. This would hold true regardless of
the slope of the yield curve.