Interest Rates Effect on Exchange Rates

[clip1989]

I read throughout the curriculum that higher interest rates attract investment and lead to an improved exchange rate. However, according to interest rate parity, the currency with the higher interest rate is expected to depreciate relative to the currency with the lower interest rate. These concepts are baffling me as they appear to contradict each other, could anyone shed some light on it?

 

[S2000magician]

There was another thread on this recently; you might want to search for it. I’ll see if I can find it.
The upshot is that there are multiple forces acting on exchange rates, some pushing them up, others pushing them down. The net effect could be almost anything.

 

[clip1989]

I think this is the thread
http://www.analystforum.com/forums/cfa-forums/cfa-level-iii-forum/91328927
Unfortunately, it appears inconclusive.

 

[S2000magician]

clip1989 wrote:I think this is the thread
http://www.analystforum.com/forums/cfa-forums/cfa-level-iii-forum/91328927

I believe that that’s the one.

clip1989 wrote:Unfortunately, it appears inconclusive.

You were expecting more?

 

[Swaption11]

Higher nominal rates depreciate higher real rates appreciate I believe is the relationship.