Explanation

The TED spread is a key indicator of credit risk and liquidity in the financial markets. It is defined as:

$\text{TED Spread} = \text{3-month LIBOR (or Eurodollar rate)} - \text{3-month US Treasury bill rate}$

In modern terms, since LIBOR has been phased out, it's typically calculated as: $\text{TED Spread} = \text{3-month MRR-based rate} - \text{3-month US Treasury bill rate}$

Key points:

• The TED spread measures the difference between interbank lending rates (which include credit risk) and risk-free government rates
• A widening TED spread indicates increased perceived credit risk in the banking system
• A narrowing TED spread suggests improving credit conditions

Answer: B