Interest rate là gì? Các yếu tố ảnh hưởng đến Interest rate

In the financial market, Interest rate acts as a “guideline” that directs cash flow and directly affects the lives of each individual, business and the economy. However, not everyone understands clearly What is interest rate? and the secrets behind these numbers. Same article Decoding What is interest rate? Learn clearly about the role, types of interest rates and factors that affect Interest rate.

What is interest rate?

What is interest rate? Interest rate is interest rate in Vietnamese, a percentage calculated on the amount of money borrowed or lent for a certain period of time. This is the fee the borrower must pay the lender for using their capital, or the income the lender receives from the loaned money.

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Interest rates are expressed as a percentage per year (%/year) or percentage per month (%/month).

Decoding what interest rate is

For example:

• When you save 10 million VND in a bank with an interest rate of 6%/year for 1 year, you will receive an interest of 600,000 VND.
• When you borrow 1 billion VND from the bank with an interest rate of 8%/year for 5 years, you will have to pay a total interest of 400 million VND.

Learn what the role of Interest rate is?

Interest rates play an important and complex role in many aspects of the financial economy. It is considered the “price of money” and directly affects the cost of borrowing and investing, while also having a pervasive impact on many other aspects of the economy.

Here are some key roles of interest rates:

Promote or restrain investment and consumption

When interest rates are low, borrowing becomes cheaper, encouraging businesses and households to invest and spend more. This can lead to economic growth. On the contrary, when interest rates are high, borrowing capital becomes more expensive, causing businesses and households to tend to limit investment and spending, which can slow down growth. economic growth again.

Affects exchange rates

High interest rates can attract foreign investment to a country, which leads to an increase in the value of that country's currency. If interest rates are low, it can cause investors to sell that country's currency and switch to a currency with a higher interest rate, reducing the value of the currency.

Contribute to controlling inflation

Central banks can use interest rates to control inflation. When inflation increases, central banks can increase interest rates, reducing the amount of money circulating in the economy, thereby helping to reduce inflation. Conversely, when inflation is low, the central bank can reduce interest rates to stimulate the economy.

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Direct impact on financial markets

Interest rates affect the prices of bonds and other fixed income securities. When interest rates increase, bond prices often decrease and vice versa.

Interest rate affects financial markets

Furthermore, interest rates also greatly affect stock prices. When interest rates are low, investors may be inclined to shift money from bonds to stocks, causing stock prices to rise. Conversely, when interest rates are high, investors may be inclined to shift money from stocks to bonds, causing stock prices to fall.

Types of interest rates commonly used today

There are many different types of interest rates used in the economy, each with its own role and characteristics. Below are some of the most popular interest rates in Vietnam:

Loan interest rate

Is the interest rate that banks or credit institutions charge customers when they borrow money. Loan interest rates depend on many factors such as:

• Type of loan (mortgage loan, consumer loan, business loan…)
• Loan term
• Risk level of the loan
• Customer credit history
• Policies of banks or credit institutions

Loan interest rates are usually specified in percentage (%) per year.

Savings interest rate

Is the interest rate that banks or credit institutions pay customers when they save money.

The savings interest rate depends on many factors such as:

• Type of savings (online savings, term savings, non-term savings…)
• Savings term
• Amount of savings deposit
• Policy of the bank or credit institution

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Savings interest rates are also specified in percentage (%) each year.

Discount interest rate

The interest rate that the State Bank stipulates for commercial bank loans to meet short-term liquidity needs. Discount interest rates are usually lower than capital mobilization interest rates of commercial banks.

The purpose of the discount interest rate is to encourage commercial banks to use payment instruments such as checks, money orders… to make payments instead of using cash.

Interbank interest rate

The interest rate at which commercial banks lend to each other through the interbank market.

Interbank interest rates depend on many factors such as:

• Supply and demand of capital in the market
• Risks of the loan
• Reputation of the borrowing bank and lending bank

Interbank interest rates play an important role in regulating the liquidity of the banking system.

Current interest rates

Deposit interest rate

Is the interest rate at which banks mobilize capital from organizations and individuals.

The deposit interest rate depends on many factors such as:

• Type of capital mobilization (short-term capital mobilization, long-term capital mobilization…)
• Term of capital mobilization
• Amount of capital raised
• Bank policy

Capital mobilization interest rates are the main source of income for commercial banks. In addition, there are some other less common types of interest rates such as: rediscount interest rates, bond interest rates…

What are the factors that affect interest rate?

Interest rate is influenced by different factors such as: economic situation, monetary policy, financial market. This influence is shown in detail as follows:

Economic situation

When the economy grows strongly, the demand for loans for investment and consumption increases, leading to increased interest rates. On the contrary, when the economy slows down, interest rates tend to decrease.

Inflation is the rate at which prices of goods and services increase over time. When inflation is high, central banks often raise interest rates to curb inflation. On the contrary, when inflation is low, interest rates tend to decrease.

Monetary policy

Central banks often use monetary policy to adjust interest rates to achieve economic goals such as stabilizing prices, promoting economic growth and ensuring the safety of the financial system. Central banks use Use tools such as:

• Increasing or decreasing the required reserve ratio will affect the amount of money circulating in the economy, thereby affecting interest rates.
• When the central bank buys government bonds, it provides more money to the market, leading to lower interest rates. Conversely, when selling government bonds, the central bank will withdraw money from circulation, leading to increased interest rates.
• The refinancing interest rate is the interest rate at which the central bank lends money to commercial banks. When the central bank increases refinancing interest rates, lending interest rates of commercial banks will also increase, and vice versa.

Factors affecting interest rate

Financial market

When the supply of capital in the financial market increases, interest rates tend to decrease. On the contrary, when capital demand increases, interest rates tend to increase. When market risk increases, investors tend to sell bonds and other safe assets to buy riskier assets, leading to increased interest rates. Conversely, when market risk is low, interest rates tend to decrease.

Investors' expectations about future interest rates can also affect current interest rates. For example, if investors expect interest rates to increase in the future, they may demand a higher interest rate on their current loan.

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How to manage interest rates for personal and business finances

Effective interest rate management is a key factor to ensure financial security and optimize profits for both individuals and businesses. Here are some effective interest rate management strategies:

How to manage personal finances

Learn and monitor market interest rates

Always monitor savings interest rates to choose the bank with the highest interest rate to optimize profits from deposits. Similarly, compare loan interest rates to choose the loan option with the lowest cost.

Use credit cards wisely, avoid overspending, and always pay your balance in full each month to avoid high interest rates on unpaid debts.

Personal debt management

Consider restructuring high-interest debt by debt consolidation or switching to lower-interest loans. Prioritize paying off debts with high interest rates first, then pay off debts with lower interest rates.

Smart investment

Invest smart by investing in channels with higher interest rates such as stocks, bonds, or investment funds instead of just leaving money in a savings account. Diversify investment types and portfolios to minimize risks and take advantage of profitable opportunities from many different sources.

Use financial tools

Calculating compound interest: Understand compound interest and how it can help grow wealth over time. Financial tracking tools: Use financial management applications or software to track income and expenses, interest rates on debt and deposits, helping to make the right decisions.

Personal financial management

Manage corporate interest rates

Corporate debt management

Regularly negotiate with banks or financial institutions to get the most preferential loan interest rates. Manage short-term and long-term loans well to ensure businesses are not under financial pressure due to high interest rates.

Cash flow management

Accurately plan and forecast cash flow to avoid capital shortages, help businesses proactively repay debt and optimize interest rates. Invest in projects with high profitability and ensure loan interest rates are carefully considered so as not to adversely affect cash flow.

Use derivative financial instruments

Use derivatives such as futures contracts and interest rate options to hedge the risk of interest rate fluctuations. Use interest rate swaps to convert from variable interest rates to fixed interest rates or vice versa, to stabilize borrowing costs.

Financial analysis and risk management

Regularly analyze interest rate trends to forecast and devise reasonable financial management strategies. Establish risk management policies and processes to minimize the impact of interest rate fluctuations on your business operations.

By applying these effective interest rate management strategies, individuals and businesses can ensure financial security, minimize risks and optimize profits.

So through the article we have a better understanding of Decoding What is interest rate? Roles as well as popular types of interest rates today. Interest rates play a very important role in the economy. Mastering knowledge about interest rates, including types of interest rates, influencing factors and effective management methods, will help you make wise financial decisions, optimize profits and ensure financial security. main.

Always update information about interest rates and financial markets to be able to flexibly adapt and make the most suitable choices for yourself and your business.

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