Rising TED spread is typically a sign of increase in what type of risk among large banks?

Rising TED spread is typically a sign of increase in what type of risk among large banks?

I. Credit risk

II. Market risk

III. Liquidity risk

IV. Operational risk
A . I only
B . II only
C . I and IV
D . I, II, and III

View Answer

Answer: D

Explanation:

The TED spread is the difference between the interest rates on interbank loans and short-term U.S. government debt (Treasuries). A rising TED spread indicates that lenders believe the risk of default on interbank loans is increasing. This typically reflects increased credit risk, market risk, and liquidity risk among banks. Higher TED spreads suggest that banks are less willing to lend to each other due to concerns about their solvency and liquidity positions.