When domestic investments become more attractive because of higher interest rates, investors will demand more of the domestic (or local) currency. The effect is

Question

Quizplus · Accepted Answer

When investors demand more of the domestic currency due to higher interest rates on domestic investments, the value of the domestic currency increases. This is because there is more demand for the currency and a limited supply, thus increasing its value.

When Domestic Investments Become More Attractive Because of Higher Interest