Relationship: interest rate versus exchange rate, exchange rate versus foreign exchange supply and demand.
Mode: two countries, one with high interest rate and one with low interest rate.
Analysis: According to your question, just analyze the relationship between exchange rate and foreign exchange supply and demand in high-interest countries. According to the exchange rate parity theory, the currency of high-interest countries, that is, the currency of high-interest countries, the spot exchange rate rises and the forward exchange rate falls. Due to the fluctuation of spot exchange rate, the appreciation of local currency and the spread between the two countries, assuming that the transaction cost is low enough and there is room for cash or swap transactions, a large amount of foreign exchange will enter high-interest countries to seek benefits, that is, the supply of foreign exchange will increase.
Take the dollar and the yen for example. If the exchange rate rises, the dollar will depreciate relatively because of the appreciation of RMB, and the market will reduce the use of the dollar as the trading currency, so the actual foreign exchange demand will decrease.
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