Interest rate and Currency Value

How are they related? What is the underlying reasoning? Any differences between short term interest rate and currency value, verse long term interest rate and currency value?

An increase in real interest rates should attract capital and its currency should appreciate. Countries wiith Higher nominal intrest rates should see their currencies trade at a forward discount

It is theorized that there should be no difference between the REAL interest rates of two countries in the long-run. While there is a difference in the short-term, the country with higher REAL interest rate will experience their currency appreciate (due to demand of their currency).

So it does not matter if the interest rate is short term or long term? say 1 year treasury versus 10 years treasury?

you need to first separate the two; Real and Nominal. As you know, nominal rate includes inflation. Real Rate Short-term: There may be difference in short-term and therefore the country with higher real rate will see its currency appreciating. Real Rate Long-Term: There should be no difference. Nominal Rate Short-Term: If a country has lower real rate but higher nominal rate compared to the other country, it’s currency will depreciate. Nominal Rate Long-Term: Since there is no difference in real rates in long-term, the difference is nominal rate is largly due to difference in inflation. Therefore, the country will higher nominal rate (higher inflation) will see its currency depreciating. Hope this helps!