Under floating exchange rates,relatively low domestic interest rates tend to promote depreciation of a currency's exchange value while relatively high domestic interest rates lead to currency appreciation.

Question

Quizplus · Accepted Answer

This is because low interest rates make it less attractive for investors to hold that currency, which decreases demand and leads to a decrease in value, while higher interest rates increase demand for that currency and lead to appreciation.

Under Floating Exchange Rates,relatively Low Domestic Interest Rates Tend to Promote