higher interest rate leads to currency appreciate or depreciate?

CFA Level III
#1

Can anyone point out what am I missing?

Higher interest rate leads to money coming in and leads to currency appreciate.

From another perspective of covered interest rate parity, the higher interest rate will leads to lower exchange rate so that income from higher interest rate will be offset by the lower exchange rate, such that there is no arbitrage opportunity.

Which one should I follow? Not sure if there is previous posts, the forum is really slow and it’s a pain to search.

thx

#2

Never mind, the first one should be real interest rate. I guess they have differrent context.

#3

IRP holds - depreciated

From capital flow perspective - appreciated.

So, depends.

#4

I think this is question for PPP vs. Relative eonomic strength.