Will the currency of a country appreciate,if interest rate is high in that country ?

Question

anonymous · Answer

Hmm I'm not 100% sure but here's my logic. If the interest in country A is high, that means its a good place for country B to invest due to higher returns. This demand for investment in A will require A's currency, thus appreciating its value (increase in demand. economics 101 here). In reality though, you also have to look at other factors. For example, if inflation is really high, the real rate of return (that is return adjusted for inflation) will actually be very small. The higher the inflation, the lower the value of the currency. It's a combination of various factors that affect the exchange rate, but if we are looking at just one aspect (interest rates), than the answer to your question is yes.

Hope this helps you.

anonymous · Answer

Good logic,i have a idea about that but i am not sure of rules & regulations to invest in a country having higher interest rate.If you have any idea about the restrictions imposed by a country that can offset the return premium,do share it.Thanks for the answer.