Understanding Finance from scratch

Chapter 8 No one speaks Chinese these days, everyone speaks CPI——Learn some financial terms every day (4)
So, how is the development of personal credit system in our country?At present, the People's Bank of China has established two major credit investigation systems, one is the enterprise credit investigation system, which has established credit files for more than 470 million borrowing enterprises, and has included RMB credit balances of more than 17 trillion yuan; the other is the personal credit investigation system , At present, this system has established credit files for more than 5 million people and saved the credit records of more than 5000 million people.These two systems will play a more and more important role in helping banks understand the credit records of enterprises and individuals, review loans, prevent credit risks, and help enterprises and individuals accumulate credit wealth, obtain more favorable financial services, and obtain more development opportunities. more important role.

As individuals, we should strive to establish and maintain a good credit record. Here are three key points:

First, build your credit history early.Some people may say, in order to avoid credit stains, I should not borrow money at all. Wouldn't it be clear?What I want to explain here is that not borrowing money from the bank does not mean that you have good credit. Without historical credit records, it is difficult for banks to judge personal credit status.Therefore, an easy way to establish a credit history is to have a loan relationship with a bank.

Second, try to maintain a good credit history.This means paying attention to credit, establishing the concept of honesty and trustworthiness, repaying loans and credit card overdrafts in time, and paying various fees on time, otherwise it will affect personal credit.

Finally, pay more attention to your credit history.Life is busy and financial transactions are frequent. Due to some unavoidable reasons, the information in your credit report may be wrong, so we must find out early.Once you find that there is an error in your personal credit record, you should contact the institution that provided the credit report as soon as possible to correct the wrong information in time to avoid adverse effects on yourself.

legitimate interest
In the famous comedy "The Merchant of Venice", Shakespeare created two very interesting characters: one is Antonio, a Venetian merchant who is heroic and courageous, and stabs his friends; the other is Shylock, a sinister, ruthless and ruthless usurer.In order to retaliate against Antonio for lending money to others without charging interest and for insulting himself earlier, when Antonio borrowed money from Shylock for a friend's wedding, he deliberately proposed that if he could not repay the loan on time, he would have to pay on Antonio's chest. Harsh conditions for cutting off a pound of flesh as punishment.After a series of gripping dramatic conflicts, poor Shylock not only lost his money, but also became the object of widespread ridicule; Antonio, the representative of justice, finally won.

If viewed from an economic point of view, Shakespeare undoubtedly describes an economic dispute in his comedies.The root of this dispute lies in the "direct financing" of the merchant Antonio to the loan shark Shylock.In Shakespeare's day, monetary wealth was rare, and usurers were the chief providers of this wealth.For all the monetary wealth the usurer possesses, it derives more from his squeezing of poor borrowers than from taking deposits.Shylock's hatred for Antonio stems from the fact that when Antonio lends money to others, he does not need others to pay the high interest that Shylock asks for.Excessively high interest is the fundamental reason for usurers to get rich.

What is interest?Interest is the remuneration obtained by the owner of funds for lending funds to the state. It comes from a part of the profits formed by the producers using the funds to perform operating functions. The value-added amount, the calculation formula is: interest = principal × interest rate × time.So why charge interest?

(1) Delay consumption.By lending money, lenders delay consumption of consumer goods.According to the principle of time preference, consumers will prefer current goods over future goods, so there will be positive interest rates in the free market.

(2) Expected inflation.Most economies experience inflation, which means that an amount of money will buy fewer goods in the future than it does now.Therefore, the borrower needs to compensate the lender for the loss during this period.

(3) Investment risk.Borrowers are always at risk of going bankrupt, absconding, or defaulting on their debts, and lenders need to charge extra money to ensure that they are still compensated in these cases.

(4) Liquidity preference.People prefer that their funds or resources can be traded at any time, rather than needing time or money to get back.Interest rates are also a compensation for this.

To sum up, it is only natural to charge interest on loans.For example, Smith thought: "Most interest-bearing loans are lent out of money, either banknotes or gold and silver. But what the borrower needs and what the lender supplies is actually not money but the value of money. In other words , are the goods that money can buy. If what he wants is capital that he can enjoy immediately, then what he borrows is goods that can be used immediately. If what he wants is capital for the revitalization of industry, then what he wants What is borrowed is the tools, materials and food necessary for the laborer’s work. The thing about the loan is actually that the lender transfers the right to use a part of his land and the products of labor to the borrower, allowing him to use it as he pleases.”

From the perspective of investment, this is true of general borrowing and lending. Just as the exchange is to obtain the desired items instead of currency, borrowing and lending is essentially the transfer of goods.Such goods may include both stocks of "new" products and so-called investments that have been used or are being used; the transfer of the former may be called direct investment, the transfer of the latter may be called indirect investment.Of course, there is no reason why any transfer should be gratuitous.

Many people, especially stock investors, may be curious about the relationship between interest and the stock market, so let me explain it here.Theoretically speaking, there is an obvious "leverage effect" between the interest rate and the stock market, which will be related to the increase or decrease of the stock market and the amount of bank funds.For example, the rise of interest rates will increase the production cost of enterprises, restrain the demand of enterprises and personal consumption, and ultimately affect the performance level of listed companies.For the stock market, raising interest rates will virtually increase the capital cost of investing in the stock market. Moreover, bank interest rate hikes and treasury bond interest rates generally complement each other. If the market's risk-free rate of return increases, it will also affect the risk-return of the stock market. Rate.

However, judging from the extent and space of my country's current rate hike and the development status of China's stock market, the rate hike will not have much impact on the stock market.If the investment benefit of the stock market is higher than the return of bank deposits compared with its safety benefit, the choice of the stock market will be the main reason for the diversion of savings.

Interest rate: the price payable for the use of capital
Here's a tidbit of recent news: Reliance Telecom, India's second-largest mobile phone service provider, said it hopes to raise $19 billion in funding from the China Development Bank, of which $13 billion will be used to repay existing debt.India's Reliance Power will raise 11 billion US dollars of funds for the company's existing power plant projects under construction to provide financial support.Yields on India's top-rated corporate debt have risen 73 basis points to 8.95% this year, the biggest increase since 2006.At present, the loan interest rate in China is relatively low, 1% to 3% cheaper than that in India.Therefore, applying for a loan from a Chinese bank will be a very good choice.

So how is the interest rate classified and how is it calculated?What role does it play in the economic market?

Interest rate is also called interest rate.Indicates the ratio of the amount of interest to the principal within a certain period of time, usually expressed as a percentage, and is called the annual interest rate when calculated on an annual basis.The calculation formula is: interest rate = interest amount ÷ principal ÷ time × 100%.

The interest rate can be regarded as the reward for temporarily giving up the right to use currency, and it is a kind of compensation for giving up currency circulation. If people are willing to postpone consumption, they should get additional compensation for this behavior.From the perspective of the borrower, the interest rate is the unit cost of using capital, which is the price paid by the borrower to the lender for using the lender's monetary capital; from the perspective of the lender, the interest rate is the price at which the lender lends monetary capital rate of return obtained.

The existence of the interest rate tells us how much future consumption can be obtained by giving up current consumption worth 1 yuan, which is the relative price between the present and the future.The amount of the overall interest rate is crucial to the present value. Only by knowing the present value can we understand the financial present value in the future, and the interest rate is a bridge linking the present value and the future value.

Generally speaking, the interest rate varies according to the term standard of measurement, and the expression methods include annual interest rate, monthly interest rate, and daily interest rate; according to the determination method of interest rate, it can be divided into official interest rate, public interest rate and market interest rate; it can be divided according to whether the interest rate is floating during the loan period It can be divided into fixed interest rate and floating interest rate; according to the position of interest rate, it can be divided into benchmark interest rate and general interest rate; according to the length of credit behavior, it can be divided into long-term interest rate and short-term interest rate; Different lending entities are divided into central bank interest rates, commercial bank interest rates and non-commercial bank interest rates. Central bank interest rates include rediscount and re-lending interest rates, commercial bank interest rates include deposit interest rates, loan interest rates, discount rates, etc., and non-bank interest rates include bond interest rates. , enterprise interest rate, financial interest rate, etc.; according to whether it has a preferential nature, it can be divided into general interest rate and preferential interest rate; according to the calculation formula of interest rate, it can be divided into simple interest rate and compound interest rate.

So how is the level of interest rates determined?In other words, what is the basis for determining the level of interest rates?

The first is the general price level.This is an important basis for safeguarding the interests of depositors.If the interest rate is higher than the price increase rate in the same period, it can ensure that the real interest income of depositors is positive; on the contrary, if the interest rate is lower than the price increase rate, the real interest income of depositors will become negative.Therefore, the level of interest rates depends not only on the level of nominal interest rates, but more importantly, whether they are positive or negative interest rates.

The second is the interest burden of state-owned large and medium-sized enterprises.For a long time, most of the funds for the production and development of state-owned large and medium-sized enterprises have relied on bank loans. Changes in the interest rate level have a direct and important impact on the cost and profit of the enterprise. Therefore, the determination of the interest rate level must consider the bearing capacity of the enterprise.For example, from 1996 to 1999, the People's Bank of China lowered deposit and loan interest rates seven times, which greatly reduced corporate loan interest payments.

Once again, it is the interests of the state finances and banks.The impact of interest rate adjustment on fiscal revenue and expenditure is mainly produced indirectly by affecting the increase or decrease of financial taxes paid by enterprises and banks.Therefore, when adjusting the interest rate level, it is necessary to comprehensively consider the state's fiscal revenue and expenditure.A bank is a special enterprise operating monetary funds. The deposit and loan spread is the main source of bank income. The determination of the interest rate level must also maintain an appropriate deposit and loan spread to ensure the normal operation of the bank.

Finally, there are national policies and the supply and demand of social funds.The interest rate policy should be subject to the overall situation of the national economic policy and reflect the requirements of national policies in different periods.Like the prices of other commodities, the determination of the interest rate level also takes into account the supply and demand of social funds, which is restricted by the law of supply and demand of funds.

In addition, other factors such as term and risk are also important basis for determining the interest rate level.Generally speaking, the longer the term, the higher the interest rate; the greater the risk, the higher the interest rate.Conversely, the lower the interest rate.With the improvement of my country's economic openness, changes in the interest rate level of the international financial market will have an increasing impact on my country's interest rate level. When studying domestic interest rate issues, it is also necessary to refer to the international interest rate level.

The premise of interest rate liberalization is the benchmark interest rate
The People's Bank of China announced on the evening of the 19th that since October 2010, 10, it will raise the benchmark interest rates for RMB deposits and loans of financial institutions.

其中，金融机构1年期存款基准利率上调0.25个百分点，由现行的2.25％提高到2.50％；1年期贷款基准利率上调0.25个百分点，由现行的5.31％提高到5.56％；除活期存款利率未调整外，其他各档次存贷款基准利率均相应调整。

What is a base rate?Can you decipher the meaning behind this news?
The interest rate hike on the 20th is the first rate hike by my country's central bank after three years.The last time the central bank raised interest rates was in December 3. In 2007, in response to excess liquidity and inflationary pressures, the central bank raised the benchmark deposit and lending rates six times. Since September 12, in response to the international financial crisis, the central bank has opened up room for interest rate cuts, lowering lending rates five times and deposit rates four times.Therefore, this interest rate hike can be regarded as a concern about the current inflationary pressure.

Now this news involves an unfamiliar yet familiar financial term—the benchmark interest rate.The benchmark interest rate is the guiding interest rate announced by the People's Bank of China for commercial bank deposits, loans, discounts and other businesses. The deposit rate cannot fluctuate up and down temporarily, and the loan interest rate can fluctuate from 10% to 70% based on the benchmark interest rate.The benchmark interest rate is an interest rate that has a general reference role in the financial market, and other interest rate levels or financial asset prices can be determined based on this benchmark interest rate level.The benchmark interest rate is one of the important prerequisites for interest rate liberalization. Under the condition of interest rate liberalization, financiers measure financing costs and investors calculate investment returns. Objectively, a generally recognized interest rate level is required as a reference.Therefore, the benchmark interest rate has become the core of the formation of the interest rate marketization mechanism.

Generally speaking, the benchmark interest rate must have the following basic characteristics: First, it is market-oriented.It is obvious that the benchmark interest rate must be determined by market supply and demand, and not only reflect the actual market supply and demand, but also reflect market expectations for the future; second, fundamental.The benchmark interest rate is in a fundamental position in the interest rate system and the financial product price system, and it has a strong correlation with interest rates in other financial markets or prices of financial assets; third, transitivity.The market signal reflected by the benchmark interest rate, or the regulatory signal issued by the central bank through the benchmark interest rate, can be effectively transmitted to other financial markets and financial product prices.

The benchmark interest rate can be regarded as the boss of the interest rate family and has a decisive impact on other interest rates. When it changes, other interest rates will also change.The benchmark interest rate is generally regulated by the central bank.As long as it controls the benchmark interest rate, the central bank can exert influence on other interest rates and thus affect the flow of funds across the country.In my country, the one-year deposit and loan interest rate is the most important benchmark interest rate.The media often reports on the People's Bank of China's decision to raise or lower interest rates. The "interest rate" generally refers to the one-year deposit and loan interest rate.The central bank always focuses on the macro economy, carefully weighs the impact of interest rate adjustments on other aspects, and makes prudent decisions on interest rate adjustments.

In China, the benchmark interest rate is the deposit and loan interest rate stipulated by the People's Bank of China for national specialized banks and other financial institutions.Specifically, ordinary people use the bank's one-year time deposit rate as the market benchmark interest rate indicator, and banks use the overnight lending rate as the market benchmark interest rate.

In the past, the interest rates implemented by financial institutions when handling deposit and loan business were also set by the central bank.Now that interest rates have gradually become market-oriented, financial institutions have great flexibility in determining the level of deposit and loan interest rates.Financial institutions can flexibly set the loan interest rate level, provided that it is not lower than a certain range of the benchmark loan interest rate issued by the central bank, which is currently 90%; %.Financial institutions can also flexibly determine the deposit interest rate level, provided that it is not higher than the benchmark deposit interest rate set by the central bank.In theory, the above-mentioned interest rate management methods are called the lower limit management of loan interest rates and the upper limit management of deposit interest rates.

Of course, the determination of the benchmark interest rate level cannot be done behind closed doors. The People's Bank of China mainly considers the following four macroeconomic factors when determining the benchmark interest rate level: First, the supply and demand of funds in the whole society.Funds can be regarded as a commodity, and the interest rate is the price of funds, which can be used as an adjustment tool to balance the supply and demand of funds.The second is the level of corporate profits.Many companies want to borrow money from banks, and they have to pay interest on the loan.Interest expense is part of the costs of a business.If the loan interest rate is too high, the cost of the enterprise will increase and the profit margin will shrink.The third is the profit level of commercial banks.Commercial banks are the medium of funds, and their main income is the difference in interest between the source of funds and the use of funds.The central bank's interest rate will directly affect the profit margin of commercial banks.Fourth is the price level.If prices rise too high, the central bank will often raise interest rates to curb inflation; on the contrary, if prices are too low and deflation occurs, the central bank will consider lowering interest rates to help the economy get out of trouble.

(End of this chapter)