In most cases the primary objective is to price the loans at a level that gives the bank a return on the capital employed above some target rate set by management, this is sometimes referred to as the hurdle rate. Provided that this hurdle rate is equal to, or greater than, the business unit’s cost-of-equity [...]
Basis spreads
The spreads between benchmark rates such as LIBOR and Treasuries vary over time. This creates opportunities to bet on whether these spreads will widen or narrow. The most practical way to trade on US$ rates is by using Eurodollar versus US Treasuries interest rate futures. If the spread between LIBOR and US Treasuries is expected [...]