A decrease in the Eurodollar-T-bill spread indicates that:
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A. B. C. D.B
Eurodollar rate is the rate of interest paid on inter-banking U.S. Dollar loans and deposits outside the U.S. Since the U.S. Treasury has the best credit in the world, the yield on U.S. Treasury bills is lower than the Eurodollar rate. The "spread" or the difference between the two rates is a measure of the additional credit risk involved in inter-bank loans compared to loans to the U.S. Treasury. If the demand for Eurodollar lending increases relative to the purchase of t-bills, the ED-T-bill spread will narrow. Thus, the behavior of the spread reflects the risk attitude of investors in the lending markets.