Why do higher interest rates usually lead to currency values increasing? a. Investors need to purchase the domestic currency to invest in that country and collect the higher interest rate. b. The higher interest rate leads to inflation, which increases the price of currency together with all other products. c. High interest rates encourage people to import more foreign goods, which will lead to more demand for the domestic currency. d. Countries usually increase interest rates to fight recessions, and the resulting growth of the economy increases demand for that country’s currency.

Why do higher interest rates usually lead to currency values increasing?

1. Investors need to purchase the domestic currency to invest in that country and collect the higher interest rate.
2. The higher interest rate leads to inflation, which increases the price of currency together with all other products.
3. High interest rates encourage people to import more foreign goods, which will lead to more demand for the domestic currency.
4. Countries usually increase interest rates to fight recessions, and the resulting growth of the economy increases demand for that country's currency.

Answer

• Investors need to purchase the domestic currency to invest in that country and collect the higher interest rate.

Explanation:

When interest rates rise in a country, investments in that country promises higher rate of returns than before. More investors will demand interest-bearing assets in the country. This strengthens the country's currency relative to the foreign countries. High interest rates also mean you get higher returns on capital you hold in your bank account which attracts more foreign investment, more people demanding the currency because of its value.