Foreign exchange:

What is foreign exchange?

With the deepening of my country's reform and opening up, foreign-related economic activities have penetrated into all areas of the national economy, whether it is import and export trade, scientific and technological academic exchanges, or the introduction of foreign investment, the issuance of B shares, H shares or global treasury bonds and Overseas securities financing, almost all of which involve foreign exchange, is a foreign payment method different from RMB. As a means of international payment, foreign exchange is active in trade and international financial markets around the world. Compared with the RMB, its activities are more unpredictable due to the influence of complex international factors.

Foreign exchange is a product of international trade and a means of payment for international trade settlement. Foreign Exchange refers to foreign exchange. "Foreign exchange" is the transfer of currency to another place, and "convert" is the conversion between currencies. Dynamically speaking, foreign exchange is to convert one country's currency into another country's currency and circulate it internationally. Used to settle claims and debts arising from international economic transactions. From a static perspective, foreign exchange is represented as a means and tool for international settlement, such as foreign currencies and various securities denominated in foreign currencies. The definition of foreign exchange given by the International Monetary Fund (IMF) is: “Foreign exchange is the monetary administration (central bank, monetary management agency, foreign exchange stabilization fund and the Ministry of Finance) in the form of bank deposits, Treasury bills, long-term and short-term government bonds, etc. Claims held that can be used in the event of a balance of payments deficit. These include non-circulating bonds issued by central banks and intergovernmental agreements, regardless of whether they are expressed in the currency of the debtor country or the currency of the creditor country. "According to the IMF's definition, my country has made clearer regulations on foreign exchange. Article 2 of the "Interim Regulations of the People's Republic of China and Foreign Exchange Administration" stipulates foreign exchange as follows: Foreign exchange refers to 1. foreign currencies, including banknotes, coins, etc.; 2. foreign currency securities, including government bonds, treasury bills, and corporate bonds , stocks, coupons, etc.; 3. Foreign currency payment certificates, including bills, bank deposit certificates, postal and telecommunications savings certificates; 4. Other foreign exchange funds.

From a formal point of view, foreign exchange is a certain foreign currency or foreign currency asset, but it cannot be considered that all non-domestic currencies are foreign exchange. Only those foreign currencies that are convertible can become foreign exchange. The currency of any country that accepts the provisions of Article 8 of the IMF Agreement is recognized internationally as a freely convertible currency. These countries must fulfill three regulations: 1. No restrictions shall be imposed on regular international payments and fund transfers; 2. No discriminatory currency measures or multiple currency exchange rates shall be implemented; 3. At the request of another member state, they shall be obliged to exchange money at any time. Return the other party's domestic currency balance in regular transactions. To date, the currencies of more than 50 countries around the world are freely convertible. In addition, the currency of any country that accepts the provisions of Article 14 of the IMF Agreement is regarded as a limited convertible currency. The unique characteristics of these currencies are reflected in the imposition of various restrictions on current international payments and fund transfers. Such as restricting residents’ free convertibility or restricting the convertibility of capital account foreign exchange. my country's RMB is a currency with limited convertibility.

The functions of foreign exchange reserves mainly include the following four aspects:

First, adjust the balance of international payments and ensure external payments. When a deficit occurs in the international balance of payments, reserves can be used to make up for it. Although this is only a temporary measure, it buys time to prepare other adjustment measures;

The second is to intervene in the foreign exchange market to stabilize the local currency. exchange rate. When the supply of foreign exchange in the foreign exchange market exceeds demand, a country's monetary authorities, such as the central bank, purchase foreign exchange in the foreign exchange market to prevent the excessive rise in the local currency exchange rate. When the supply of foreign exchange exceeds demand in the foreign exchange market, foreign exchange can be sold to prevent excessive decline in the local currency exchange rate;

The third is to maintain international credibility and improve external financing capabilities. Frequent international capital flows are a major feature of today's world. Whether funds flow into a certain country often depends on investors' assessment of the country's creditworthiness. The degree of sufficient foreign exchange reserves is an important evaluation indicator;

The fourth is to enhance comprehensive national strength and the ability to resist risks. The increase in foreign exchange reserves also means the enhancement of a country's external solvency and comprehensive national strength.

What are exchange controls?

Foreign exchange control refers to a system in which a country's government controls foreign exchange businesses such as international settlement, foreign exchange rates, and foreign exchange sales through decrees, in order to achieve balance of international payments and stabilize the domestic currency exchange rate.

Foreign exchange control practices can be divided into two types: administrative control and cost control.

Administrative control means that all foreign exchange transactions are controlled by government-designated agencies. Exporters must sell the foreign exchange earnings from their exports to the foreign exchange control agency at the official exchange rate, and importers must also apply to the foreign exchange control agency to purchase foreign exchange at the official exchange rate. The entry and exit of domestic currency are also subject to strict restrictions. In this way, the state and relevant government agencies can control the volume, type and country of imported goods through the centralized use of foreign exchange and control of the amount of foreign exchange supplied to importers, in order to achieve the purpose of restricting imports.

Cost control is to control foreign exchange expenditures and encourage foreign exchange earnings by setting multiple exchange rates to increase the cost of foreign exchange and reduce the cost of exchange. In the case of multiple exchange rates, a lower exchange rate is applied to the import of necessities and a higher exchange rate is applied to the import of non-necessities to increase their import costs and achieve the effect of restricting imports.

So, the foreign exchange control of non-tariff barrier measures can be defined like this, that is, the state controls the importers' imports by controlling the foreign exchange supply and foreign exchange rate by controlling foreign exchange business such as foreign exchange buying and selling. and which country it is imported from.

What is foreign exchange account?

Foreign exchange funds refer to the domestic currency invested by banks in acquiring foreign exchange assets. Banks purchase foreign exchange to form local currency, and the purchased foreign exchange assets constitute the bank's foreign exchange reserves. Since the bank foreign exchange settlement and sales system consists of two market systems, the bank over-the-counter foreign exchange settlement and sales market and the inter-bank foreign exchange market, there are regulatory rigidities in the supply and demand of foreign exchange in both markets. "Foreign exchange holdings" accordingly has two meanings: first, the RMB investment caused by the central bank's acquisition of foreign exchange in the inter-bank foreign exchange market; second, the entire banking system that takes into account both the bank counter market and the inter-bank foreign exchange market. (Including the central bank and commercial banks) The investment of RMB funds into the real economy resulting from the acquisition of foreign exchange. The former type of foreign exchange holdings belongs to the central bank's foreign exchange purchase behavior and is reflected in the "central bank balance sheet". The latter type of foreign exchange holdings belongs to the foreign exchange purchase behavior of the entire banking system (including the central bank and commercial banks), and is reflected in the "RMB Credit Receipts and Expenditure Statements of All Financial Institutions".

Corresponding to the two meanings of "foreign exchange holdings", under the strict bank foreign exchange settlement and sales system, the central bank's acquisition of foreign exchange assets forms the foreign exchange reserves held by the central bank, while the entire banking system acquires Foreign exchange assets form the foreign exchange reserves of the whole society. Changes in the foreign exchange reserves of the whole society are reflected in the "foreign exchange" item under "reserve assets" in the "balance of international payments". The foreign exchange reserves we refer to daily are the foreign exchange reserves of the whole society.

The two meanings of foreign exchange holdings have different impacts on domestic RMB currency and funds. The specific manifestations are: 1. The central bank purchases foreign exchange → forms the foreign exchange reserves held by the central bank → releases base currency; 2. The entire banking system purchases foreign exchange → forms the whole society’s foreign exchange reserves → forms the investment of social funds.

What is the foreign exchange benchmark price?

From 1994 to the present, my country has implemented a single, managed floating exchange rate system based on market supply and demand.

The People's Bank of China publishes the weighted average price of RMB every day based on the inter-bank foreign exchange transaction price of the previous day as the benchmark exchange rate for transactions.

Foreign exchange transactions between banks and customers can float within the range of ±0.0025 of the benchmark price, and inter-bank foreign exchange transactions can float within the range of ±0..003 of the benchmark price. At the same time, we will realize the unification of exchange rates and implement a single exchange rate system.

What are foreign exchange options?

Personal foreign exchange options business is actually the sale of a right. The buyer of the right has the right to buy or sell an agreed amount of a certain currency from the seller of the right at an agreed exchange rate within a certain period of time in the future; At the same time, the buyer of the right also has the right not to execute the above-mentioned sales contract, providing individual investors with flexible tools and opportunities to profit from exchange rate changes. Specifically, they are divided into two types: "buy options" and "put options".

What is a "purchase option"

"Purchase option" means that the customer pays a certain amount of option fee to the bank and then buys it based on his or her own judgment on the future direction of the foreign exchange rate. Foreign exchange options (call options or put options) with corresponding face value, term and execution price. When the option expires, if the exchange rate changes in favor of the customer, the customer can obtain higher returns by executing the option; if the exchange rate movement is unfavorable to the customer, the customer can Choose not to exercise the option.

Operation example: The spot exchange rate of the euro against the U.S. dollar is 1.1400. The customer expects that the exchange rate of the euro against the U.S. dollar will rise to 1.1600 in one week. At this time, the customer can choose to buy options for 100,000 euros in his hand. , based on the initial exercise price of 1.1400 and the option rate of 0.7%. At this time, the customer only needs to pay an option fee of 700 euros to obtain the US$2,000 that has increased in value due to the increase in the exchange rate. If a week later, the exchange rate is suddenly lower than the 1.1400 at the time of purchase, the customer can give up the option, which means losing the option premium of 700 euros.

What is "selling option"

"Selling option" is when the customer deposits a time deposit and sells a foreign exchange option to the bank based on his or her own judgment. In addition to receiving time deposit interest (deducting interest tax), customers can also receive an option fee. When the option expires, if the exchange rate changes are unfavorable to the bank, the bank will not exercise the option, and the customer may obtain income higher than the interest on time deposits; if the exchange rate changes are favorable to the bank, the bank will exercise the option and the customer's time deposit principal will be The agreed exchange rate is converted into the corresponding linked currency.

Operation example: For example, if a customer has a deposit of US$100,000 and chooses the Japanese yen as the linked currency, the initial exchange rate agreed with Bank of China is 1:120, and the rights fee is 0.74%, Bank of China will transfer US$740 The option fee is paid to the customer. Assume that one month later, the market exchange rate is 1:120 or below 120, and Bank of China gives up the option. At this time, Bank of China returns US$100,000 to the customer plus one month's interest of US$33.33; if the market exchange rate is above 1:120, Bank of China will After exercising the option, the principal returned by Bank of China to the customer will no longer be US dollars, but 12 million yen plus US$33.33 in after-tax interest. Its advantage is that investors can receive both fixed deposit interest and option premiums.

What is foreign exchange margin trading?

Margin foreign exchange trading should be called spot foreign exchange margin trading.

It does not have a fixed exchange, but trades between banks. The foreign exchange brokerage company is an intermediary institution. For futures varieties, the exchange's quotation is unique at any time; in foreign exchange transactions, different banks or brokerage companies may give customers different quotations. Although these quotations are not very different, they are enough to have an impact on traders. . Generally speaking, most banks or brokerage companies use the quotes from Reuters or the Associated Press as trading prices, and there will be slight differences when the market changes drastically.

The contract for margin foreign exchange trading is generally worth 100,000 US dollars or 100,000 foreign currencies, such as 100,000 euros, 100,000 pounds, etc. The trading margin is generally 1%, or 1,000 US dollars per lot.

The market analysis and trading strategies of margin foreign exchange trading are not fundamentally different from stocks and futures. The main difference lies in fund management. Due to the high leverage of margin foreign exchange trading, even if the trader makes a correct judgment in the direction, if the funds are used unreasonably, he may be cleared out due to small random fluctuations in price. It is common for exchange rates to fluctuate by more than 10% in the short term, such as one or two months. This is not surprising for full trading, but for 1% or even 0.5% margin trading, it is 100 times to 200 times profit.

The foreign exchange trading market is the largest financial market in the world, with an average of more than 2 trillion US dollars in capital turnover every day - equivalent to 30 times the combined transactions of all U.S. securities markets. "Forex trading" is the simultaneous purchase of one currency in a pair of currencies and the sale of the other currency. Forex is traded in currency pairs, such as Euro/USD (EUR/USD) or US Dollar/Japanese Yen (USD/JPY). There are 2 main reasons for trading Forex. Approximately 5% of the daily transaction turnover is due to companies and government agencies buying or selling their products and services abroad, or having to convert the profits they make abroad into domestic currency. The other 95% of transactions are for Take profit.

For profit-seeking investors, the best trading opportunities are always with those most commonly traded (and therefore most liquid) currencies, called the "major currencies". Today, approximately 85% of daily trading is in these major currencies, which include the US dollar, Japanese yen, euro, British pound, Swiss franc, Canadian dollar and Australian dollar.

The foreign exchange trading market is a 24-hour global trading market. Market trading starts in Sydney every day, and as the earth rotates, the business days of every financial center in the world will start in sequence, first of all Tokyo, Hong Kong, Singapore, then London, and New York. Unlike other financial markets, foreign exchange trading investors can react at any time to foreign exchange fluctuations caused by economic, social and political events that occur day or night.

The foreign exchange trading market is an over-the-counter (OTC) or "in-bank" trading market, because in fact foreign exchange transactions are reached by both parties over the phone or an electronic trading network. Foreign exchange transactions are not like stocks and Like the futures trading market, it is not concentrated on a certain exchange.

What is foreign exchange rate?

We are all familiar with domestic trade. When you go to the store to buy rice, you will naturally pay in RMB. Of course, Midian is also happy to accept RMB. Trade can be conducted in RMB. The exchange of goods within a country is relatively simple. However, if you want to buy an American-made computer, things get complicated. Maybe you pay in RMB in a store, but through the role of banks and other financial institutions, you end up paying in US dollars, not RMB. Similarly, if Americans want to buy Chinese goods, they end up paying in RMB. In this way, we introduced the concept of foreign exchange rate from international trade: foreign exchange rate is the ratio of one country's currency unit to another country's currency unit.

2. Pricing method of foreign exchange rate

Currently, domestic banks determine exchange rates with reference to the international financial market. There are usually two pricing methods: direct pricing method and indirect pricing method.

Direct pricing method: Direct pricing method is also called price pricing method. It is a method of expressing the exchange rate of a certain unit of foreign currency in terms of the domestic currency. Generally, it is how much domestic currency can be converted into 1 unit or 100 units of foreign currency. The more valuable the domestic currency is, the less domestic currency can be exchanged for one unit of foreign currency, and the smaller the exchange rate value. On the contrary, the less valuable the domestic currency is, the more domestic currency can be exchanged for one unit of foreign currency, and the greater the exchange rate value. Under the direct pricing method, the rise and fall of the foreign exchange rate is inversely proportional to the change in the value of the domestic currency: when the local currency appreciates, the exchange rate falls; when the local currency depreciates, the exchange rate rises. Most countries adopt the direct pricing method. Most of the exchange rates on the market are also exchange rates under the direct pricing method. For example: US dollar against Japanese yen, US dollar against Hong Kong dollar, US dollar against RMB, etc.

Indirect pricing method: The indirect pricing method is also called the quantity pricing method. It is a method of expressing the exchange rate of a certain unit of domestic currency in terms of foreign currency. Generally, it is how much foreign currency can be converted into 1 unit or 100 units of local currency. The more valuable the domestic currency is, the more foreign currencies can be exchanged for a unit of local currency, and the greater the exchange rate value. On the contrary, the less valuable the domestic currency is, the fewer foreign currencies can be exchanged for a unit of local currency, and the smaller the exchange rate value is.

Under the indirect pricing method, the rise and fall of the foreign exchange rate is directly proportional to the change in the value of the domestic currency: when the local currency appreciates, the exchange rate rises; when the local currency depreciates, the exchange rate falls. Former Commonwealth countries mostly used the indirect pricing method, such as the United Kingdom, Australia, New Zealand, etc. The exchange rates that adopt the indirect pricing method in the market mainly include British pound against US dollar, Australian dollar against US dollar, etc.

What is a position?

1. Position (position) is also called "head lining". The meaning of money is a popular term in the financial and business circles. If the bank's income from all receipts and payments on the day is greater than the payment, it is called a "long position"; if the payment is greater than the income, it is called a "short position." The behavior of predicting more or less of this type of position is called "squeeze positioning". The act of finding ways to transfer funds everywhere is called "position reversal". If the temporarily unused funds are greater than the demand, it is called a "loose position"; if the demand for funds is greater than the idle amount, it is called a "tight position".

2. Position is a word commonly used in the financial industry, and is often used in finance, securities, stocks, and futures transactions.

For example, when opening a position in futures trading, the position held after buying a futures contract is called a long position, or long for short; the position held after selling a futures contract is called a short position, or short for short. The difference between open long contracts and open short contracts in a commodity is called the net position. This is only done in futures trading, but not in spot trading.

In foreign currency trading, "opening a position" means opening. Opening is also called opening, which is the act of buying one currency and selling another currency at the same time. After the opening, one currency is long (long) and the other currency is short (short). Choosing the appropriate exchange rate level and timing to establish a position are the prerequisites for profitability. If you enter the market at a good time, you have a greater chance of profit; on the contrary, if you enter the market at a bad time, you are prone to losses. Net position refers to the trading difference between one currency acquired after opening and another currency.

In addition, in the financial industry, there are also terms such as closing positions and position lending.

There are many types of position days: the first position day (the first day of the futures delivery process), etc. Most of them refer to the day when the funds are used.

What are bond and currency open-end funds?

The more common fund classification method in the market is based on different fund investment objects. According to relevant regulations: if more than 60% of the fund assets are invested in stocks, it is a stock fund; if more than 80% of the fund assets are invested in bonds, it is a bond fund; if more than 80% of the fund assets are invested in bonds, it is a money market fund; if it invests only in money market instruments, it is a money market fund; investment Funds that are invested in stocks, bonds and money market instruments, and the proportion of stock investment and bond investment does not meet the aforementioned stock type and bond type, are called allocation funds (also called hybrid funds).

Bond funds refer to funds that specifically invest in bonds. In China, the investment objects of bond funds are mainly treasury bonds, financial bonds and corporate bonds. In China, the development of bond funds is just in its infancy. Currently, there are only a few bond funds that have been established and published their net worth. For example, ChinaAMC Bond Fund, China Merchants Bond Fund, Harvest Bond Fund, Huabao Health Bond Fund, Dacheng Bond Fund, etc.

When investing in bond funds, the two basic factors are interest rate sensitivity and credit quality. The rise and fall of bond prices is inversely related to the rise and fall of interest rates. When interest rates rise, bond prices fall; the credit quality of a bond fund depends on the credit rating of the bonds it invests in.

Monetary funds are a type of open-end fund. According to the types of financial products invested by open-end funds, open-end funds are divided into four basic types: stock funds, hybrid funds, and bonds. Funds and currency funds, the first two categories belong to the capital market, and the latter category belongs to the money market. Monetary funds mainly invest in extremely safe short-term financial products such as bonds, central bank bills, and repurchases. They are also known as "quasi-savings products." Their main characteristics are "worry-free principal, convenient demand, regular income, and Diary earnings, monthly dividends”. Under normal circumstances, the probability of investors making a profit is 99.84%; the expected rate of return is between 1.8-2%, which is higher than the 1.8% interest on one-year time deposits, and there is no interest tax; it can be redeemed at any time, generally after application Funds will arrive the next day after redemption, which is very suitable for organizations and individuals who pursue low risk, high liquidity, and stable income.

Compared with other funds, currency funds have the following characteristics:

The main difference between currency funds and other funds that invest in stocks is that the net asset value of the fund unit is fixed. , usually 1 yuan per fund unit. After investing in the fund, investors can reinvest the proceeds, and the investment income will continue to accumulate, increasing the fund shares owned by investors. For example, an investor invests 100 yuan in a currency fund and can own 100 fund units. After one year, if the investment return is 8%, then the investor will have 8 more fund units, for a total of 108 funds. Unit, value 108 yuan.

The standard for measuring the performance of currency funds is the rate of return, which is different from other funds that make profits through the appreciation of net asset value.

Monetary funds have good liquidity and high capital security. These characteristics mainly stem from the fact that the currency market is a low-risk, highly liquid market. At the same time, investors are not subject to date restrictions and can transfer fund units at any time as needed.

Monetary funds have low risk. The maturity date of money market instruments is usually very short. The average maturity of money fund investment portfolio is generally 4 to 6 months, so the risk is low. Its price is usually only affected by market interest rates.

Investment Low cost. Currency funds usually do not charge redemption fees, and their management fees are also low. The annual management fees of currency funds are approximately 0.25% to 1% of the fund's net asset value, which is lower than the traditional fund annual management fee of 1%. ~2.5%.

Currency funds are all open-end funds. Currency funds are usually regarded as risk-free or low-risk investment tools. They are suitable for short-term investment of capital to generate interest for emergency needs, especially when interest rates are high, inflation is high, security liquidity declines, and credibility is reduced. The principal is protected from loss.

What is the bond market? What types of bonds are there?

The bond market is a place where bonds are issued and bought and sold. The bond market is an important part of the financial market. The bond market can be divided into different categories based on different classification standards. The most common classifications are as follows.

(1) According to the operation process of bonds and the basic functions of the market, the bond market can be divided into the issuance market and the circulation market.

The bond issuance market, also known as the primary market, is the market where the issuing unit sells new bonds for the first time. The role of the bond issuance market is to disperse bonds issued by governments, financial institutions, industrial and commercial enterprises to the society to raise funds, and distribute them to investors.

The bond circulation market, also known as the secondary market, refers to the market for the sale and transfer of issued bonds. Once a bond is subscribed, a creditor-debtor relationship is established for a certain period, but investors can transfer the creditor's rights through the bond circulation market. Liquidate the bonds.

The bond issuance market and the circulation market complement each other and are an interdependent whole. The issuance market is the source of the entire bond market and the premise and foundation of the bond circulation market.

A developed circulation market is an important support for the issuance market, and the development of the circulation market is a necessary condition for the expansion of the issuance market.

(2) According to the form of market organization, the bond circulation market can be further divided into on-site trading, mid-term trading and over-the-counter trading market. Stock exchanges are places that specialize in securities trading, such as the Shanghai Stock Exchange and Shenzhen Stock Exchange in my country. The market formed by buying and selling bonds in a stock exchange is the exchange market. This market organization form is a relatively standardized form of the bond circulation market. As the organizer of bond transactions, the exchange itself does not participate in the purchase, sale and price of bonds. Decide. It just creates conditions and provides services for bond buyers and sellers. and regulate.

The over-the-counter market is a center for securities trading outside the stock exchange. The counter market is the main body of the over-the-counter market. Many securities operating institutions have specialized securities counters through which bonds are purchased and sold. In the over-the-counter trading market, securities operating institutions are both transaction organizers and participants. In addition, the over-the-counter trading market also includes banks and institutional investors through telephone, computer and other communication means. market etc. At present, my country's bond circulation market consists of three parts, namely the Shanghai and Shenzhen stock exchange markets, the inter-bank trading market and the over-the-counter trading market of securities operating institutions.

(3) Depending on where the bond is issued, the bond market can be divided into the domestic bond market and the international bond market. In the domestic bond market, the issuers and places of issuance belong to the same country, while in the international bond market, the issuers and places of issuance do not belong to the same country.

What is a bond fund?

U.S. Federal Reserve Chairman Alan Greenspan can be said to be the most influential central bank president in the world. Not only has the saying "Greenspan sneezes, Wall Street has a bad cold" spread like wildfire, his words and deeds It has also attracted the attention of global financial markets, but as a central bank president with an eye for action, how does Greenspan manage his wealth? In an effort to avoid conflicts of interest at work, Greenspan did not invest in stocks at all. He chose bonds with stable returns as a tool to increase wealth.

What are bonds? Bonds are securities that represent debt financing by a government or company. You can think of it simply as an IOU from a government or company. The government or enterprise that issues the bond must pay investors fixed interest payments on a regular basis and repay the investor's principal when the bond matures. Investors in the bond market are mainly professional institutional legal persons. As for general investors, most of them use bond funds to intervene. Bond funds refer to investments in a basket of bonds issued by overseas governments or companies, consisting of a variety of bonds with different maturities and different Composed of bonds with coupon rates and the investment objective of pursuing fixed income.

Generally speaking, when market interest rates go down, bond prices will rise, and when market interest rates go up, bond prices will show a downward trend. The knowledge in this is that the coupon rate of general bonds is fixed. When market interest rates fall, the dividends received by the holders will not be less. On the contrary, because the market interest rates have fallen, the original bonds will receive relatively more dividends. , thus becoming more attractive, the price will naturally rise. To use the simplest example, assume that the current market interest rate is 7%, and you spend 100 yuan to invest in a bond. The bond states that you can receive 7% interest every year.

If the market interest rate drops to 5%, and the bond you previously invested can still earn a fixed interest rate of 7%, then its price will of course be more than 100 yuan. Therefore, when market interest rates fall, bond prices rise.

For bond fund operations, when interest rates fall and bond prices rise, bond fund managers can sell bonds and earn the price difference; if interest rates rise, the interest rates on newly purchased bonds by managers will also rise. If the fund is higher, the amount of dividend reinvestment will also increase. Therefore, under appropriate management operations, the net value of the fund will be limited by changes in market interest rates.

Generally speaking, bond funds have lower risks than stock funds and are very suitable for conservative investors. In the entire investment portfolio, bond funds can act as a "talisman" to avoid significant changes in assets. Since the global stock market faces a large retracement cycle on average every four to five years, bonds can reduce the volatility of the investment portfolio because of their characteristics of "stable dividend income" and "anti-stock market trends". Stable remuneration income. Take the U.S. stock market and bond market as an example. Over the past three decades, the average return on the U.S. stock market has been about 15%, which is higher than the 8.5% average annual return on the U.S. bond market. However, the largest single-year decline in the U.S. stock market has reached -26.5%. On the other hand, the largest single-year decline in the bond market was only -3.5%. This is because bonds have dividend income, which can cushion the impact of market declines.

Based on the experience of financial product development in European and American countries, there are many types of bond funds. Investors can select bond funds that meet their needs based on the credit rating of the bonds. For example, if the risk that investors can tolerate is not high, it is suitable to choose government bond funds issued by European and American industrial countries. They have higher credit ratings, less price fluctuations, and are much safer, but their returns are also relatively low. As for more active investors, they can choose corporate bond funds with higher dividend yields.

Both government bonds and corporate bonds have their investment value. The characteristic of government bonds is that the credit risk is zero, but the returns are limited. Corporate bonds are remunerated by lending money to enterprises, although the fluctuations are relatively high. Public debt is high, but the yield is also high. Each has its own investment value and is suitable for different investors.