Tunnel on inflation
Tunnel on inflation
A tunnel on inflation is a strategy with options by means of which you will be ensured some limits to the fluctuation of inflation.
It will be useful to you if your company pays or receives incomes linked to inflation.
1. Payer
If your company pays incomes linked to inflation, by means of a tunnel on inflation you can limit the fluctuations of inflation between a minimum rate ( floor ) and a maximum ( cap ) for a determined period.
upon maturity of each period:
- You receive the stipulated inflation rate (Spanish inflation in twelve-month rate, for example).
- You pay a rate agreed with the strategy:
- if inflation rate < floor: floor
- if floor < inflation rate < cap : inflation rate
- if cap < inflation rate: cap
The tunnel on inflation is settled by offset. The effect of the settlements of the tunnel on inflation for your company consists of neutralizing the variation in your received incomes due to inflation in the event of the inflation rate passing the limits ( floor o cap ).
2. Recipient
If your company pays incomes linked to inflation, by means of a tunnel on inflation you can limit the fluctuations of inflation between a minimum rate ((floor) and a maximum rate (cap) for a determined term.
upon maturity of each period:
- Pays the stipulated inflation rate (Spanish inflation in twelve-month rate, for example).
- Receives a rate agreed with the strategy:
- if inflation rate < floor: floor
- if floor < inflation rate < Cap : inflation rate
- if cap < inflation rate: cap
The tunnel on inflation is settled by offset. The effect of the settlements of the tunnel on inflation for your company consists of neutralizing the variation in your received incomes due to inflation in the event of the inflation rate passing the limits (floor or cap).
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