Here's what you need to know about UF:
* It's not currency: UF is not a physical currency that you can hold in your hand. It's a unit of measurement similar to a dollar or a euro.
* Linked to inflation: The UF is linked to the Consumer Price Index (CPI), which measures the average change in prices paid by urban consumers for a basket of consumer goods and services. This means that the value of the UF increases with inflation.
* Used for long-term contracts: UF is used for long-term contracts such as mortgages, leases, and loans. By indexing these contracts to UF, lenders and borrowers are protected against inflation.
* Stable and predictable: Because the UF is linked to inflation, it provides a more stable and predictable unit of account for long-term contracts. This means that the real value of the contract is less likely to be eroded by inflation.
* Daily updates: The value of the UF is adjusted daily based on the CPI.
Examples of UF usage:
* Mortgages: Mortgages in Chile are often denominated in UF. This helps to protect the borrower from rising interest rates and inflation.
* Leases: Commercial leases are often indexed to UF. This ensures that the landlord receives rent payments that keep pace with inflation.
* Savings accounts: Some savings accounts in Chile are linked to UF, providing a return that is adjusted for inflation.
In summary, the UF is a valuable tool for managing financial risk in Chile. By linking contracts and financial transactions to the UF, individuals and businesses can protect themselves against inflation and ensure that the real value of their investments is preserved.