1、Topic Two,Determination of Interest Rates,Interest rate movements have a direct influence on the market value of debt securities, such as money market securities, bonds, and mortgages, and have an indirect influence on equity security values. Thus, participants in financial markets attempt to antici
2、pate interest rate movements when reconstructing their positions. Interest rate movements also affect the value of most financial institutions. The cost of funds to depository institutions and the interest received on some loans by financial institutions are affected by interest rate movements.,In a
3、ddition, the market values of securities held by depository or nondepository institutions are affected as well. Thus, managers of financial institutions attempt to anticipate interest rate movements so that they can capitalize on favorable movements or reduce their institutions exposure to unfavorab
4、le movements.,The specific objectives of this topic are to: Apply the loanable funds theory(可贷资金理论) to explain why interest rates change; Identify the most relevant factors that affect interest rate movements; Explain how to forecast interest rates.,Loanable Funds Theory,The loanable funds theory su
5、ggests that the market interest rate is determined by the factors that control the supply of and demand for loanable funds. The phrase “demand for loanable funds” refer to the borrowing activities of households, businesses, and governments.,Household demand for loanable fundsTo finance housing expen
6、ditures, automobiles and household items. At any point in time, households would demand a greater quantity of loanable funds at lower rates of interest. In other words, there is an inverse relationship between the interest rate and the quantity of loanable funds demanded.If the tax rates on househol
7、d income are expected to decrease, what will happen?,Business demand for loanable fundsBusinesses demand loanable funds to invest in long-term (fixed) and short-term assets. The quantity of funds demanded depends on the number of business projects to be implemented. Businesses evaluate a project by
8、comparing the present value of its cash flows to its initial investment, as follows:Where, NPV=net present value of project, INV=initial investment, CFt=cash flow in period t, and k=required rate of return on project.,The required return to implement a given project will be lower if interest rates a
9、re lower the cost of borrowing funds to support the project will be lower a greater amount of financing will be needed by businesses.In order to support ongoing operations, businesses also invest in short-term assets (such as accounts receivable and inventory). When interest rates are higher opportu
10、nity costs of investing in short-term assets is higher firms generally attempt to support ongoing operations with fewer funds.Economic conditions VS Quantity of loanable funds,Government demand for loanable fundsWhenever a governments planned expenditures cannot be completely covered by its incoming
11、 revenues from taxes and other sources, it demands loanable funds. Federal government demand (issue Treasury securities) for funds is said to be interest-inelastic, or insensitive to interest rates, while municipal governments (issue municipal bonds) is somewhat sensitive to interest rates. In gener
12、al, federal government expenditure and tax policies are thought to be independent of interest rates.,Foreign demand for loanable fundsOther things being equal, a larger quantity of U.S. funds will be demanded by foreign governments and corporations if their domestic interest rates are high relative
13、to U.S. rates. Aggregate demand = Household demand + Business demand + Federal government demand + Municipal government demand + Foreign demand,Supply of loanable fundsIn general, the main supplier of “loanable funds” is household sector. Government and businesses are net demanders of loanable funds
14、. Suppliers of loanable funds are willing to supply more funds if the interest rate (reward for supplying funds) is higher, other things being equal. The supply of loanable funds is also influenced by the monetary policy implemented by federal government, because the Fed controls the amount of reser
15、ves held by depository institutions and can influence the amount of savings that can be converted into loanable funds.,Equilibrium interest rateThe aggregate demand for funds: DA= Dh+ Db+ Dg+ Dm+ Dfwhere:Dh = household demand for loanable funds;Db = business demand for loanable funds;Dg = federal go
16、vernment demand for loanable funds;Dm = municipal goverment demand for loanable funds;Df = foreign demand for loanable funds;,Aggregate supply of funds: SA= Sh+ Sb+ Sg+ Sm+ Sf, where,Sh = household supply for loanable funds;Sb = business supply for loanable funds;Sg = federal government supply for l
17、oanable funds;Sm = municipal goverment supply for loanable funds;Sf = foreign supply for loanable funds;,In equilibrium, DA = SA. Given an equilibrium situation, the equilibrium interest rate should rise when DA SA and fall when DA SA.The quantity of loanable funds demanded is normally expected to b
18、e more elastic (or more sensitive, steep slope) to interest rates than the quantity of loanable funds supplied. Why?,Economic Forces That Affect Interest Rates,Impact of economic growth on interest ratesEconomic growth puts upward pressure on interest rates, an economic slow-down puts downward press
19、ure on the equilibrium interest rates. Impact of inflation on interest ratesWhen inflation is expected to increase, households may reduce their savings, and business may be willing to borrow more funds at any interest rate level. This may shift SA inward and DA outward, and finally upward equilibriu
20、m interest rates.,Economic Forces That Affect Interest Rates,Fisher Effect. , Where, = nominal or quoted rate of interest, E(INF) = expected inflation rate, = real interest rate. Fisher proposed that nominal interest payments compensate savers in two ways: first, they compensate for a savers reduced
21、 purchasing power, and second, they provide an additional premium to savers for forgoing present consumption, or savers are willing to forgo consumption only if they receive a premium on their savings above the anticipated rate of inflation.In the following parts of this course, interest rate refers
22、 nominal rate of interest.,Impact of the money supply on interest ratesWhen the money supply is increased it increase the supply of loanable funds it places downward pressure on interest rates.,Impact of the budget deficit on interest ratesA higher government deficit increase the demand of loanable
23、funds interest rates will rise (assuming other things be equal).Given a certain amount of loanable funds supplied to the market (through saving), excessive government demand for these funds tends to “crowd out” the private demand (by consumers and corporations) for funds. The federal government may
24、be willing to pay whatever is necessary to borrow these funds, but the private sector may not. This impact is known as the crowding-out effect(挤出效应).,Impact of foreign flows of funds on interest ratesThe interest rate for a specific currency is determined by the demand for funds denominated in that
25、currency and the supply of funds available in that currency.Impact of a unified Germany, Impact of Japans recession, Impact of the Asian crisis. Summary of forces that affect interest ratesIn general, economic conditions are the primary forces behind a change in the supply of savings provided by hou
26、seholds or a change in the demand for funds by households, businesses, or the government.,Forecasting Interest Rates,Though it is difficult to predict the precise change in the interest rate due to a particular event, being able to assess the direction of supply or demand schedule (upward or downwar
27、d) shifts can at least help in understanding why interest rates changed in a specific direction.,http:/research.stlouisfed.org/fred2/series/TB1YS/116/10yrs,Summary,The loanable funds framework shows how the equilibrium interest rate is dependent on the aggregate supply of available funds and the agg
28、regate demand for funds. As conditions cause the aggregate supply or demand schedules to change, interest rates gravitate toward a new equilibrium. The relevant factors that affect interest rate movements include changes in economic growth, inflation, the budget deficit, foreign interest rates, and
29、the money supply. In particular, economic growth has a strong influence on the demand for loanable funds, and changes in the money supply have a strong impact on the supply of loanable funds.,Summary,Given that the equilibrium interest rate is determined by supply and demand conditions, changes in t
30、he interest rate can be forecast by forecasting changes in the supply of or the demand for loanable funds.,Questions and Applications,Explain what is meant by interest elasticity. Explain why interest rates tend to decrease during recessionary periods. Should increasing money supply growth place upw
31、ard or downward pressure on interest rates? Justify your answer. The flight of funds from bank deposits to stocks will pressure interest rates, right? Using the information and the data shown in this chapter, explain why the interest rate changed as it did.,公开市场业务,在多数发达国家，公开市场操作是中央银行吞吐基础货币，调节市场流动性的主
32、要货币政策工具，通过中央银行与指定交易商进行有价证券和外汇交易，实现货币政策调控目标。中国公开市场操作包括人民币操作和外汇操作两部分。外汇公开市场操作1994年3月启动，人民币公开市场操作1998年5月26日恢复交易，规模逐步扩大。1999年以来，公开市场操作已成为中国人民银行货币政策日常操作的重要工具，对于调控货币供应量、调节商业银行流动性水平、引导货币市场利率走势发挥了积极的作用。,公开市场业务,目前公开市场业务一级交易商共包括40家商业银行。这些交易商可以运用国债、政策性金融债券等作为交易工具与中国人民银行开展公开市场业务。从交易品种看，中国人民银行公开市场业务债券交易主要包括回购交易、
33、现券交易和发行中央银行票据。 其中回购交易分为正回购和逆回购两种，正回购为中国人民银行向一级交易商卖出有价证券，并约定在未来特定日期买回有价证券的交易行为，正回购为央行从市场收回流动性的操作，正回购到期则为央行向市场投放流动性的操作；逆回购为中国人民银行向一级交易商购买有价证券，并约定在未来特定日期将有价证券卖给一级交易商的交易行为，逆回购为央行向市场上投放流动性的操作，逆回购到期则为央行从市场收回流动性的操作。,公开市场业务,现券交易分为现券买断和现券卖断两种，前者为央行直接从二级市场买入债券，一次性地投放基础货币；后者为央行直接卖出持有债券，一次性地回笼基础货币。 中央银行票据即中国人民银
34、行发行的短期债券，央行通过发行央行票据可以回笼基础货币，央行票据到期则体现为投放基础货币。,存款准备金,存款准备金是指金融机构为保证客户提取存款和资金清算需要而准备的资金，金融机构按规定向中央银行缴纳的存款准备金占其存款总额的比例就是存款准备金率。存款准备金制度是在中央银行体制下建立起来的，世界上美国最早以法律形式规定商业银行向中央银行缴存存款准备金。存款准备金制度的初始作用是保证存款的支付和清算，之后才逐渐演变成为货币政策工具，中央银行通过调整存款准备金率，影响金融机构的信贷资金供应能力，从而间接调控货币供应量。,利率工具概述,利率政策是我国货币政策的重要组成部分，也是货币政策实施的主要手段
35、之一。中国人民银行根据货币政策实施的需要，适时的运用利率工具，对利率水平和利率结构进行调整，进而影响社会资金供求状况，实现货币政策的既定目标。,利率工具概述,目前，中国人民银行采用的利率工具主要有： 调整中央银行基准利率，包括：再贷款利率，指中国人民银行向金融机构发放再贷款所采用的利率；再贴现利率，指金融机构将所持有的已贴现票据向中国人民银行办理再贴现所采用的利率；存款准备金利率，指中国人民银行对金融机构交存的法定存款准备金支付的利率；超额存款准备金利率，指中央银行对金融机构交存的准备金中超过法定存款准备金水平的部分支付的利率。 调整金融机构法定存贷款利率。 制定融机构存贷款利率的浮动范围。 制定相关政策对各类利率结构和档次进行调整等。,利率市场化介绍,我国利率改革的长远目标是：建立以市场资金供求为基础，以中央银行基准利率为调控核心，由市场资金供求决定各种利率水平的市场利率体系的市场利率管理体系。,
