Chapter 4 Interest Rate ?Interest rate is the price of the money. ?Interest rates are the most pervasive element in the financial market. ?Interest works both ways. ?You earn interest when you save and you pay interest when you borrow. 4.1 The types of Interest Rates fixed interest rates and floating interest rates short-term interest rates and long-term interest rates nominal real interest and real interest rates market interest and managed interest 4.2 Calculating Interest Rate 4.2.1 simple interest （单利） 4.2.2 compound interest (复利) 4.2.3 Nominal Versus Real Interest Rates (名义利率和实际利率) Nominal Interest Rates ---measured in money as distinct from purchasing power. Real Interest Rates ---measures the increment in purchasing power as a percent of purchasing power loaned out. Real Interest Rates = Nominal Interest Rates – inflation rate 对实际利率的计算通常会出现三种情况对实际利率的计算通常会出现三种情况： 名义利率高于通货膨胀率时，实际利率为正利率。 名义利率等于通货膨胀率时，实际利率为零。 名义利率低于通货膨胀率时，实际利率为负利率。 ex ante or expected real interest rates and ex post or realized real interest rates The economic significance distinguishing Nominal Interest Rates and Real Interest Rates 4.3 What Determines the Level of Interest Rate 4.3.1 Supply of credit or loanbale funds (lending) 4.3.2 Demand for credit or loanbalefunds (borrowing) 4.3.3 Equilibrium interest rate (均衡利率) oEquilibrium interest rate is the intersection point of the Supply and Demand curves. oEquilibrium means no tendency for change. 4.3.4 Why does the interest rate fluctuate ? Equilibrium interest rate does not mean that it stays put. Because the shifts in the demand and /or supply curves. Many factors affect the demand and supply curves for loanablefunds underlie gyrations in interest rates. Expectations -inflationary expectations Changes in inflationary expectations affect equilibrium interest rates. vBorrowers expecting inflation to accelerate will increase their demand forloanablefunds. vLenders expecting inflation to accelerate will decrease their supply ofloanablefunds. 4.3.5 Cyclical and Long-term trends in Interest Rates vThe level of interest rates tends to rise during periods of business cycle expansion and fall during periods of cyclical recession. vThe level of interest rates was on an upward long- term trend from 1950 to 1980. vSince the early 1980s The level of interest rates has trended downward. Most borrowing come from ： ---business firms ---households ---governments Factors which will affect their eagerness to borrow ？ 4.4 The roles or functions of interest rate in the economy Interest rate send price signals to borrowers, lenders, savers and investors. It helps guarantee that current savings will flow into investment to promote economic growth. It rations the available supply of credit, generally providingloanablefunds to those investment projects with the highest expected returns. It brings into balance the supply of money with the public’s demand for money. It is also an important tool of government policy through its influence on the volume of saving and investment. 4.5 Coupon Rate on Bands(债券利率) Coupon Rate息票率：which is equal to the annual coupon(息票) divided by the face value, and which is a statement that each year the holder of the bond will get an interest payment from the bond’s issuer. Current yield 当期收益率:the annual coupon payment on a bond divided by the current price of the bond. Capital gain 资本收益：the difference between the price paid for an asset and the higher price at which it is sold. yield to maturity到期收益which is the most accurate and widely used measures of interest rates in financial market The inverse relationship between yields and bond prices Higher interest rates mean lower bond prices Lower interest rates mean higher bond prices Return versus yield to maturity Return measures the cash flows received during a period relative to the amount invested at the beginning. Zero-coupon bonds (零息债券) A bond issued without interest- bearing coupons, at a discount below face value. 4.6 利率市场化 中国人民银行公布利率市场化改革总体思路 先外币、后本币； 先贷款、后存款； 先长期、大额，后短期、小额。 利率市场化是指利率的决定权交给市场、由市场主 体自主决定利率的过程。 利率市场化至少应该包括如下内容 1．金融交易主体享有利率决定权。 2．利率的数量结构、期限结构和风险结构应由市场 自发选择。 3．同业拆借利率或短期国债利率将成为市场利率的 基本指针。 4．政府(或中央银行)享有间接影响金融资产利率的 权力。 为什么要进行利率的市场化？ 利率市场化应具备的条件 充分有效的金融监管 宏观经济稳定 微观基础的完善 建立完善的金融市场