Respuesta :
The Effect of Interest Rates Higher interest rates typically draw investment from other nations, which in turn raises the demand for and value of the domestic currency.
In contrast, lower interest rates typically make foreign investment unattractive and lower the currency's relative value.
Does loan cost equality suggest that loan costs are similar in all nations?
No. It does not imply that all nations have the same interest rates. The principle of interest rate parity stipulates that, regardless of interest rates, the hedged returns earned from an investment made in different currencies must be equal.
Exchange rates are affected by interest rate parity in what ways?
The fundamental equation governing the relationship between interest rates and currency exchange rates is interest rate parity. Interest rate parity is based on the idea that hedged returns from investing in various currencies should be the same regardless of the interest rates on those currencies.
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