Question

Increase in currency rate helps domestic currency to

Answer 1

The given statement is true. An increase in interest rate in the domestic economy leads to an increase in demand for domestic currency in the international market as more and more people people from foreign countries start investing in the domestic currency. Other things being constant, an increase in demand for domestic currency leads to an appreciation of domestic currency.

Answer 2

When a country's currency appreciates in relation to foreign currencies, foreign goods become cheaper in the domestic market and there is overall downward pressure on domestic prices. In contrast, the prices of domestic goods paid by foreigners go up, which tends to decrease foreign demand for domestic products.