How do changes in interest rates affect exchange rates?

What will be an ideal response?

Changes in interest rates affect the value of a country's currency vis-à-vis other currencies. When the interest rate in an economy increases, investors want to invest in the economy. This increases the demand for the domestic currency causing it to appreciate against other currencies in the foreign exchange market. On the other hand, when interest rate decreases in an economy, the country's currency depreciates.