A rise in the domestic interest rate leads to capital inflows, which make the exchange rate appreciate.

Name: A rise in the domestic interest rate leads to capital inflows, which make the exchange rate appreciate.
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Question

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When domestic interest rates rise, foreign investors are attracted to invest in that country's assets to take advantage of higher returns. This results in an increase in demand for that country's currency, causing it to appreciate in value.

A Rise in the Domestic Interest Rate Leads to Capital