interest rates & currency value

Which of the following statements regarding the relationship between a domestic currency value and interest rates is most accurate? A) An increase in short-term interest rates decreases the value of the domestic currency. B) An increase in short-term interest rates may increase or decrease the value of the domestic currency. C) An increase in short-term interest rates increases the value of the domestic currency. Your answer: A was incorrect. The correct answer was B) An increase in short-term interest rates may increase or decrease the value of the domestic currency. i thought IRP states that an increase in rates results in a lower currency value? or is the key to this question short-term as opposed to IRP only holding in the long run?

increase in ST rates = more more money flows into the domestic country because of higher yields and currency will appreciate because of inflows of capital. increase in ST rates = borrowing costs increase for domestic companies, economy slows down, currency can depreciate as a result of outflows. Thus, B is correct. IRP is really a LT concept that does not hold in the short run.