The TED spread
The text described the fluctuations in the TED spread that occurred during the financial crisis. Construct daily TED spreads for the month of October 2008 AND the most recent month available for Australia, the United States, the United Kingdom and Japan. For the risky market rates, you can use the LIBOR rates for three-month maturities in the various currencies, available at <www.economagic.com/libor. htm>. For the three-month safe rate, use the appropriate Treasury bill, or the bank-accepted bill, which you can find on the country's central bank website. Rank the countries by the size of the TED spread in each of the month.
a. Which of the country's spreads is the highest?
b. Has the ranking changed?
c. Consult Figure 9.3 to compare the current value of the TED spread to its value before and during the financial crisis. How does the current value of the TED spread compare to its highest values during the crisis? How does the current value of the TED spread compare to its value at the beginning of 20072 (Note that the TED spread is often quoted in basis points. One hundred basis points equals one percentage point.)
d. Has the TED spread been relatively stable in recent months? In what range of values has the spread fluctuated?
e. What do you conclude about the willingness of banks to lend to one another now as compared to the beginning of 20072 As compared to the late 2008? Explain.