Credit Crisis, 2008. During financial crises, short-term interest rates will often change quickly (typically up)

as indications that markets are under severe stress. The interest rates shown in the table below are for selected dates in September–October 2008. Different publications define the TED Spread in different ways, but one measure is the differential between the overnight LIBOR interest rate and the 3-month U.S. Treasury bill rate.

a. Calculate the spread between the two market rates shown here in September and October 2008.

b. On what date is the spread the narrowest? The widest?

c. When the spread widens dramatically, presumably demonstrating some form of financial anxiety or crisis, which of the rates moves the most and why?

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Overnight 3-Month USD U.S. Date LIBOR Treasury TED Spread 9/8/08 2.15% 1.70% 9/9/08 2.14% 1.65% 9/10/08 2.13% 1.65% 9/11/08 2.14% 1.60% 9/12/08 2.15% 1.49% 9/15/08 3.11% 0.83% 9/16/08 6.44% 0.79% 9/17/08 5.03% 0.04% 9/18/08 3.84% 0.07% 9/19/08 3.25% 0.97% 9/22/08 2.97% 0.85% 9/23/08 2.95% 0.81% 9/24/08 2.69% 0.45% 9/25/08 2.56% 0.72% 9/26/08 2.31% 0.85% 9/29/08 2.57% 0.41% 9/30/08 6.88% 0.89% 10/1/08 3.79% 0.81% 10/2/08 2.68% 0.60% 10/3/08 2.00% 0.48% 10/6/08 2.37% 0.48% 10/7/08 3.94% 0.79% 10/8/08 5.38% 0.65% 10/9/08 5.09% 0.55% 10/10/08 2.47% 0.18% 10/13/08 2.47% 0.18% 10/14/08 2.18% 0.27% 10/15/08 2.14% 0.20% 10/16/08 1.94% 0.44% 10/17/08 1.67% 0.79%