Inflation understand, liability, interest, payments, position

fishmarket

Hi,

I have trouble to understand the effect of inflation on interest payment. It is usually said that high inflation reduces the value of interest payments. Can you please explain how?

The same when I studied the Multinational operations reading. When a company is operating in an inflationnary environment, a net asset position (A>L) on the BS will result in a loss and a net liability position (L>A) will result in a gain. Could you please explain how?

Thanks in advance,

yodacaia

Interest payment is fixed at 6% of $1,000. Inflation is 12% a year. Therefore that interest received no longer has the purchasing power it used to have.