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generally a country with high interest rate should have appreciating currency value but interest parity doesnot agree with this why sir?
There are many factors that influence exchange rates. One of them is inflation (but certainly not the only one). In the exam we use purchasing power parity to forecast future exchange rates and I explain the logic in my lectures.
Interest rate parity is used both in the exam and in real life to determine forward exchange rates.
sir one the reason was also interest rates. How can interest rate influence demand for exchange rate?
On the one hand higher interest rates can increase demand for a currency which in turn can lead the currency to appreciate. However, higher nominal interest rates generally go with higher inflation (the Fisher effect) and higher inflation can lead a currency to depreciate in value.
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