science

Unidad de Fomento

Unidad de Fomento is a science topic covered in the lgStudy science library. This page brings together a partial reference excerpt, illustrations, worked examples, real-world applications and a short study plan, so you can understand Unidad de Fomento rather than just read about it. In short: The Unidades de Fomento (UF, lit. 'Units of Account') is a unit of account and a non-circulating currency used in Chile. The exchange rate between the UF and the Chilean peso, the country's legal tender, is constantly adjusted for inflation so that UF's purchasing power remains almost constant on a daily basis during low inflation.

Key takeaways

Unidad de Fomento belongs to science; place it in that map before memorising details.
Learn the definition first, then one example that makes the definition concrete.
Connect Unidad de Fomento to a quantity you can measure, compute or draw — that is where exam questions come from.
Reproduce the core statement of Unidad de Fomento from memory before moving on to harder problems.

Reference excerpt

The Unidades de Fomento (UF, lit. 'Units of Account') is a unit of account and a non-circulating currency used in Chile. The exchange rate between the UF and the Chilean peso, the country's legal tender, is constantly adjusted for inflation so that UF's purchasing power remains almost constant on a daily basis during low inflation. It was created on 20 January 1967, for the use in determining the principal and interest in international secured loans for development, subject to revaluation according to inflation. Afterwards it was extended to all types of bank loans, private or special financing, purchases and investments on installments, contracts, and some special situations. It is also used in legal standards such as the par value of stock and capitalization of companies, and fines. It has become the preferred and predominant measure to determine the cost of real estate, values of housing and any secured loan, either private or of the Chilean government. Individual payments are made in Chilean pesos, according to the daily value of the UF. A similar currency unit for use generally in payment of taxes, fines, or customs duty is the Unidad Tributaria Mensual (UTM) (lit. 'Monthly tax unit').

Calculation over time From its creation in 1967, each calendar quarter, the UF value of 100 Chilean escudos would be quoted based on the Consumer Price Index (CPI) of the past three months, which would be the official rate for the following quarter. In October 1975 with the currency changeover to pesos, the value of 1 UF was quoted in pesos and readjusted monthly. In July 1977 it was calculated daily by interpolation between the 10th of each month and the 9th of the following month, according to the monthly variation of the CPI. Since 1990 the Central Bank of Chile has determined its value. The values of the CPI are officially kept by the National Statistics Institute. Historical values of the UF as of 31 December each year (unlike below, in Chile numbers are written with a decimal comma and a dot to separate thousands):

See also Constant Item Purchasing Power Accounting Unidade Real de Valor, used in Brazil in the early 1990s. Indexed unit of account Unidad de Fomento de Vivienda, a similar instrument used in Bolivia.

External links Official historical and updated (UF) values Inflation and the mysterious UF, Corrugated City (a blog), 3 August 2007 Shiller, Robert J. Indexed Units of Account: Theory and Assessment of Historical Experience

References

Worked examples

Example 1 — a first encounter with Unidad de Fomento

Start with the simplest possible case. Write down what Unidad de Fomento claims or describes in one sentence, then invent the smallest concrete situation in which that sentence is true. In science, the smallest case is usually a single object, a single equation or a single measurement. Check that every symbol or term in your sentence has a meaning in that case.

Example 2 — changing one variable

Take the situation from Example 1 and change exactly one quantity: double it, halve it, or set it to zero. Predict what should happen to Unidad de Fomento before you calculate. Comparing your prediction with the result is the fastest way to find out whether you understand the idea or only the words.

Example 3 — an exam-style question

Typical questions about Unidad de Fomento ask you to (a) state it precisely, (b) apply it to given data, and (c) explain a limitation. Practise writing all three answers in under five minutes; the third part is what separates a full-mark answer from an average one.

Applications of Unidad de Fomento

In research: Unidad de Fomento appears in science research whenever the underlying quantities have to be modelled precisely. Papers usually cite it as a starting assumption and then explore where it breaks down.
In technology and industry: Engineering practice reuses Unidad de Fomento in design rules, simulations and safety margins. Knowing the idea lets you read a specification sheet and understand why the numbers look the way they do.
In the classroom: Unidad de Fomento is common in secondary-school and first-year university syllabi. It links to neighbouring topics 1967 establishments in Chile, Business in Chile, Currencies introduced in 1967, so understanding it makes those chapters shorter.
In everyday life: Look for Unidad de Fomento outside the textbook — in sport, cooking, traffic, electronics or the sky above you. An example you found yourself is remembered far longer than one you were given.

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How to study Unidad de Fomento in 20 minutes

Read the reference excerpt below once, without taking notes.
Close the page and write down what Unidad de Fomento means in your own words.
Compare your version with the excerpt and mark what you missed.
Work through the three examples above with pen and paper.
Explain Unidad de Fomento out loud to somebody else — or to Teacher Smith in the lgStudy chat.

Frequently asked questions

What is Unidad de Fomento in simple terms?

Why does Unidad de Fomento matter?

Because it connects several science ideas at once: it gives you a definition you can apply, a quantity you can calculate, and a way to check whether a result is plausible.

How should I study Unidad de Fomento?

Read the excerpt, restate it from memory, then work through the examples and applications listed on this page. The five-step study plan above takes about twenty minutes.

What does this page cover?

It gives you a compact reference excerpt plus original lgStudy explanations, examples, applications and study material on Unidad de Fomento.