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How does the interest rate in a country affect equilibrium currency prices?
EncofBizandFinance
If a country raises its interest rates, its currency prices will strengthen because the higher interest rates attract more foreign investors. This answer sounds exactly logical as I think about it, yet, in economics books, under the uncovered interest rate parity model, a country with a higher interest rate should expect its currency to depreciate. I would agree with this proposition in the long run an expensive currency will hurt exports... but in the very short run... let's say once the CB declaires a rise in interest rate, by how much should one expect the currency to appreciate? is there any formula for this?
Wiki User
∙ 15y ago
Wiki User
∙ 13y agoA factor that may affect equilibrium currency prices is the interest rate of a country.
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