Borrower\'s Perspective: If the income of a borrower increases with inflation and if he owes money before inflation then the inflation benefits the borrower as the same amount of interest/principle amount is owed but the income is increased and after paying off the debt the money with that person is more compared to the period before inflation. Hence it results in less interest for the lender if the borrower uses the extra money to pay his or her debt early. Lender\'s Perspective: Inflation can benefit lenders in several ways, especially when it comes to making new financing. If the wages is not increased but the borrower needs to keep up with the daily expenses, then he approaches a lender. Hence because of the inflation the prices increases by certain percentage and hence the lender can benefit from that increase in price of the item. Ex: Due to inflation the radio price increases from $ 100 to $ 120, lender lends out $ 120 by this he can earn more interest. In some cases due to the wages is stable and no increase is seen, the lender can earn more interest as the borrower may not be able to pay off his debt as his wages are not increased. Savings Perspective: Inflation affects saving of an individual, that is if the savings account has $ 100 and earns an interest of 2% then after a compounding period it becomes $ 102, but if during that period inflation hits say around 4%, he may need around $ 104 to cope up with his daily expenses. If your savings don’t grow to reflect this rise in prices over time, the effect will be as though you are actually losing money. Inflation degrades the purchasing power of an individual. Investor Perspective: Inflation is also a concern to investors, since changes in inflation and interest rates affect various asset types in different ways. The impact of inflation on the portfolio depends on the type of securities being in hold. Stocks have been performing as a good hedge against the inflation. It can be seen historically. Mainly for retirees whose risk averse they can invest in inflation indexed securities in order to protect their savings from degrading due to inflation. Solution Borrower\'s Perspective: If the income of a borrower increases with inflation and if he owes money before inflation then the inflation benefits the borrower as the same amount of interest/principle amount is owed but the income is increased and after paying off the debt the money with that person is more compared to the period before inflation. Hence it results in less interest for the lender if the borrower uses the extra money to pay his or her debt early. Lender\'s Perspective: Inflation can benefit lenders in several ways, especially when it comes to making new financing. If the wages is not increased but the borrower needs to keep up with the daily expenses, then he approaches a lender. Hence because of the inflation the prices increases by certain percentage and hence the lender can benefit from that increase in price of the ite.

1. Borrower's Perspective:
If the income of a borrower increases with inflation and if he owes money before inflation then
the inflation benefits the borrower as the same amount of interest/principle amount is owed but
the income is increased and after paying off the debt the money with that person is more
compared to the period before inflation. Hence it results in less interest for the lender if the
borrower uses the extra money to pay his or her debt early.
Lender's Perspective:
Inflation can benefit lenders in several ways, especially when it comes to making new financing.
If the wages is not increased but the borrower needs to keep up with the daily expenses, then he
approaches a lender. Hence because of the inflation the prices increases by certain percentage
and hence the lender can benefit from that increase in price of the item. Ex: Due to inflation the
radio price increases from $ 100 to $ 120, lender lends out $ 120 by this he can earn more
interest.
In some cases due to the wages is stable and no increase is seen, the lender can earn more interest
as the borrower may not be able to pay off his debt as his wages are not increased.
Savings Perspective:
Inflation affects saving of an individual, that is if the savings account has $ 100 and earns an
interest of 2% then after a compounding period it becomes $ 102, but if during that period
inflation hits say around 4%, he may need around $ 104 to cope up with his daily expenses. If
your savings don’t grow to reflect this rise in prices over time, the effect will be as though you
are actually losing money.
Inflation degrades the purchasing power of an individual.
Investor Perspective:
Inflation is also a concern to investors, since changes in inflation and interest rates affect various
asset types in different ways. The impact of inflation on the portfolio depends on the type of
securities being in hold. Stocks have been performing as a good hedge against the inflation. It
can be seen historically.
Mainly for retirees whose risk averse they can invest in inflation indexed securities in order to
protect their savings from degrading due to inflation.
Solution
Borrower's Perspective:
If the income of a borrower increases with inflation and if he owes money before inflation then
the inflation benefits the borrower as the same amount of interest/principle amount is owed but

2. the income is increased and after paying off the debt the money with that person is more
compared to the period before inflation. Hence it results in less interest for the lender if the
borrower uses the extra money to pay his or her debt early.
Lender's Perspective:
Inflation can benefit lenders in several ways, especially when it comes to making new financing.
If the wages is not increased but the borrower needs to keep up with the daily expenses, then he
approaches a lender. Hence because of the inflation the prices increases by certain percentage
and hence the lender can benefit from that increase in price of the item. Ex: Due to inflation the
radio price increases from $ 100 to $ 120, lender lends out $ 120 by this he can earn more
interest.
In some cases due to the wages is stable and no increase is seen, the lender can earn more interest
as the borrower may not be able to pay off his debt as his wages are not increased.
Savings Perspective:
Inflation affects saving of an individual, that is if the savings account has $ 100 and earns an
interest of 2% then after a compounding period it becomes $ 102, but if during that period
inflation hits say around 4%, he may need around $ 104 to cope up with his daily expenses. If
your savings don’t grow to reflect this rise in prices over time, the effect will be as though you
are actually losing money.
Inflation degrades the purchasing power of an individual.
Investor Perspective:
Inflation is also a concern to investors, since changes in inflation and interest rates affect various
asset types in different ways. The impact of inflation on the portfolio depends on the type of
securities being in hold. Stocks have been performing as a good hedge against the inflation. It
can be seen historically.
Mainly for retirees whose risk averse they can invest in inflation indexed securities in order to
protect their savings from degrading due to inflation.