The relationship between money demand and interest rates is an intuitive manifestation of the principle of supply and demand in the financial field. When the demand for money increases, the demand for funds in the market increases. In order to balance the market, banks will increase interest rates to attract depositors to provide funds, causing interest rates to rise. On the contrary, when the money supply increases, the liquidity in the market increases and the borrowing costs faced by banks decrease, so interest rates will be lowered to attract more loans.

In terms of deposits, the increase or decrease in the money supply directly affects interest rates. An increase in supply means more funds can be used for savings, which reduces bank cost pressure and reduces interest rates; conversely, a decrease in supply means less savings, increases bank costs, and increases interest rates. In terms of investment, an increase in money supply will prompt banks to lower loan interest rates to attract investment, and conversely will increase interest rates to ensure the inflow of funds.

Keynesian theory states that speculative money demand increases as interest rates fall, because low interest rates reduce borrowing costs and people are more willing to borrow. When interest rates rise, increased costs lead to reduced demand, and there is a negative correlation between the two.

The average interest rate of loans is affected by the proportion of high- and low-interest loans. If the proportion of high-interest loans is large, the interest rate will rise accordingly. The money market, such as treasury bills, commercial paper, etc., acts as a bridge for short-term capital flows, and its interest rate changes reflect the market's capital supply and demand dynamics.

There are different long-term and short-term forms of interest rates. Long-term loan interest rates usually correspond to short-term interest rates, reflecting the usage period and risk differences of funds. Long-term interest rates usually apply to medium- and long-term bonds or loans and are representative interest rates in the capital market.