A Study On The Pricing Mechanism Of The Large Certificates Of Deposit In China

This paper studies the mechanism of the pricing of the Large Certificates of Deposit in China. We take the Large Negotiable Certificates of Deposit (CDs) in the United States market as the bench mark because of its representativeness. After we analyze the generation background, the characters, and the pricing mechanism of CDs in the United States, we find that the return rates of CDs has the same trend as the Libor on the basis of the developed CDs secondary market and market integrity. We then study the generation background and the development of the Large Certificates of Deposit in China and find that there are two kinds of CDs in China, the Interbank Deposit Certificates and the Large Certificates of Deposit. The former is only for the banks and the later is only for the enterprises and individuals. Therefore, the return rate of the Large Certificates of Deposit in china is not related to the inter-bank market interest rates. Further, due to the untransferable character, there don’t exist the secondary market and the market return rate of the Large Certificates of Deposit. The pricing of the Large Certificates of Deposit is the same as the general deposit. Our empirical results indicate that the interest rates of the Large Certificates are closely related to the benchmark interest rates, but different from the inter-bank market interest rates. Our studies on the mechanism of the pricing of the Large Certificates of Deposit in China help to understand its history of the development and the relationship with the interest liberalization. Furthermore, our studies help to the appropriate policymaking which promotes the development of the Large Certificates of Deposit in China in future.