2. The relationship between exchange rate and interest rate can also be shown in the foreign exchange market. In international trade, currency exchange is inevitable, so import and export enterprises need exchange rates to calculate the costs and benefits of currency exchange. If a country's currency appreciates, its exports will become more expensive and imports will become cheaper, which may lead to a decrease in exports and an increase in imports. Rising interest rates will increase the income of domestic currency, attract more foreign investment, and lead to the appreciation of domestic currency. On the contrary, falling interest rates will lead to currency depreciation, which will affect international trade.
3. The relationship between exchange rate and interest rate can also be linked through the formulation of central bank policies. The central bank can influence the supply and demand of national economy and money by adjusting interest rate and monetary policy, and then affect the exchange rate. Under certain conditions, the rise of central bank interest rate will attract foreign investors and lead to the appreciation of the country's currency. If the central bank lowers interest rates, it will reduce the inflow of foreign capital, leading to the depreciation of the domestic currency. Therefore, the realization of exchange rate stability needs the support of the central bank's fiscal policy and monetary policy, and intervenes at an appropriate time to maintain the balance between exchange rate and interest rate.