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   Inflation Derivative
   















 

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Inflation Derivative

An instrument with a producer or consumer price index used as the basis for a swap or other index rate payment. Inflation-linked derivatives are often more difficult to hedge than traditional interest rate instruments, but several countries, including the United Kingdom, Sweden and Canada, have inflation- linked government bonds. In other countries there are few, if any, natural sellers of the inflation rate. The demand for inflation protection often exceeds readily available supply-even in countries where inflation-linked instruments are available. Also called Inflation-Linked Debt, Real Yield Security (REALS). See Retail Price Index (RPI).

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