Tell me about your understanding of interest rates

1. Definition:

Interest rate represents the ratio of interest amount to principal within a certain period, usually expressed as a percentage, and calculated annually is called the annual interest rate.

2. The calculation formula is:

Interest rate = interest amount/principal x time × 100%. Adding x100% is to switch the number into a percentage, which has the same meaning as multiplying by one. You don’t need to add it in the calculation, just remember it.

3. Expression form:

Interest rate refers to the ratio of interest amount to total borrowed capital within a certain period.

Interest rate is the interest level of unit currency in unit time, indicating the amount of interest. Economists have been working hard to find a theory that can fully explain the structure and changes of interest rates.

Interest rates are usually controlled by a country's central bank, in the United States by the Federal Reserve Board. So far, all countries use interest rates as one of the important tools for macroeconomic control.

When the economy overheats and inflation rises, interest rates will be raised and credit will be tightened; when the overheated economy and inflation are under control, interest rates will be appropriately lowered. Therefore, interest rates are one of the important fundamental economic factors. Interest rate is an important financial variable in economics. Almost all financial phenomena and financial assets are more or less related to interest rate.

4. Function:

Interest rate is an important tool to adjust monetary policy. It is also used to control investment, inflation and unemployment, etc., thereby affecting economic growth.

5. Factors affecting interest rates

(1) Profit rate level

In a socialist market economy, interest is still a part of average profits, so the interest rate It is also determined by the average profit rate. According to China's economic development status and reform practice, this restrictive effect can be summarized as follows: the overall level of interest rates must adapt to the affordability of most enterprises.

In other words, the overall level of interest rates cannot be too high, which is too high for most companies to bear; conversely, the overall level of interest rates cannot be too low, because too low the leverage effect of interest rates cannot be exerted.

(2) Capital supply and demand situation

When the average profit rate is given, the change in the interest rate depends on the ratio of the average profit divided into interest and corporate profits. This ratio is determined through competition between the supply and demand of loan capital.

Generally, when the supply of borrowing capital exceeds demand, the competition between lenders and borrowers will cause interest rates to rise; conversely, when the supply of borrowing capital exceeds demand, the competition will inevitably lead to a decline in interest rates. Under the conditions of China's market economy, since interest rates, as the "price" of commodities in the financial market, are subject to the same laws of supply and demand as the prices of other commodities, the supply and demand situation of funds still has a decisive effect on the level of interest rates.

(3) Range of price changes

Because prices are rigid, the trend of change is generally upward. Therefore, how to prevent the currency you hold from depreciating, or how to obtain compensation after suffering depreciation. , is an issue that people are generally concerned about.

This concern requires banks engaged in the operation of monetary funds to adjust the nominal interest rate for deposits to the extent of price increases, otherwise it will be difficult to absorb deposits; at the same time, they must also adjust the nominal interest rates for loans to the extent of price increases, otherwise It is difficult to obtain investment income. Therefore, the nominal interest rate level and the price level have a tendency to develop simultaneously, and the extent of price changes restricts the level of the nominal interest rate level.

(4) International Economic Environment

After the reform and opening up, China’s economic ties with other countries have become increasingly close. In this case, interest rates are inevitably affected by international economic factors, which are manifested in the following aspects:

① International capital flows affect China’s interest rates by changing China’s capital supply level;

②China's interest rate level is also affected by international commodity competition;

③China's interest rate level is also affected by the country's foreign exchange reserves and the policy on the utilization of foreign investment. influence.

(5) Policy factors

Since the founding of the People’s Republic of China in 1949, China’s interest rates have basically been of the controlled interest rate type. Interest rates are formulated by the State Council and managed by the People’s Bank of China. The formulation and implementation of interest rate levels are affected by policy factors.

China has implemented a low interest rate policy for a long time to stabilize prices and the market.

Since 1978, differential interest rates have been implemented for some departments and enterprises, reflecting policy guidance or policy restrictions. It can be seen that in China's socialist market economy, interest rates do not fluctuate completely with the supply and demand of credit funds. It also depends on the needs of the state to regulate the economy and is controlled and regulated by the state.

(6) Historical habits

(7) Length of loan period