Effect Of Inflation on Cash Instruments return, understand, expected, holding

ASSet_MANagemen

According to Schweser, expected inflation increases the return on cash instruments?!

I don't understand - I thought holding cash is terrible during inflation?

aidebaobao

I think they mean really short term investments, like 90 day T bills. In an inflationary period you'll be able to continually reinvest it in higher nominal rates. It is terrible if your stuffing it in your mattress though

Analyze_This

AndyPettitteIsGreat Wrote:
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> According to Schweser, expected inflation
> increases the return on cash instruments?!
>
> I don't understand - I thought holding cash is
> terrible during inflation?

It increases the nominal return just because the interest rate is high to compensate for the inflation. Cash instruments usually suffer in inflationary conditions.

mik82

jorgeam86 Wrote:
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> AndyPettitteIsGreat Wrote:
> --------------------------------------------------
> -----
> > According to Schweser, expected inflation
> > increases the return on cash instruments?!
> >
> > I don't understand - I thought holding cash is
> > terrible during inflation?
>
> It increases the nominal return just because the
> interest rate is high to compensate for the
> inflation. It does nothing for real returns. Cash instruments usually suffer in
> inflationary conditions.