"When the domestic interest rate is higher, the domestic currency appreciates" and "When the domestic interest rate is higher than the foreign interest rate, the forward interest rate premiums and the domestic currency forward depreciates" are both incorrect.
First sentence: When the domestic currency interest rate is high, the local currency will appreciate in the short term due to arbitrage needs, but it will also cause forward depreciation.
Second sentence: According to the interest rate parity theory, a currency with a high interest rate will depreciate in the future, and under the direct pricing method (default pricing method), the forward exchange rate will be at a premium (not an interest rate premium).
1. Currency Appreciation
Currency appreciation is the symmetry of "currency depreciation". Under the gold standard system, the legal gold content of the domestic currency is increased and its parity with foreign currencies is improved. Under the conditions of paper currency circulation, currency appreciation can be divided into two types: internal appreciation and external appreciation. The external appreciation of banknotes refers to an increase in the local currency exchange rate (a decrease in the foreign exchange rate). The external appreciation of banknotes is highly subjective and is a specific decision made by the state based on the specific economic situation. It is generally implemented when the balance of payments surplus is too large and foreign exchange reserves are excessive. In recent years, some countries have also adopted methods of external appreciation of their currencies to prevent foreign currency impacts and resist the import of foreign inflation.
2. Currency Expression
(1) Exports are restricted. If a certain country's currency appreciates, relatively speaking, if other countries' currencies depreciate, export profits will decrease. In this case, exporters may reduce exports to a certain extent.
(2) A certain amount of foreign exchange “disappeared”. When one country's currency appreciates, other countries' currencies depreciate. As a result, the foreign exchange earned previously will be less valuable. For example, the previous U.S. dollar was: 1 U.S. dollar = 8 yuan. If it was: 1 U.S. dollar = 6 yuan, then the 800 billion yuan earned before would become 600 billion yuan. Even though the quantity of money is still 800 billion, its value has dropped. In this way, out of every 800 billion yuan, 200 billion yuan will "evaporate" and "disappear out of thin air."
If it is "currency devaluation", the performance is opposite to the above. In fact, whether a currency appreciates or depreciates, it's usually not a good thing. As mentioned earlier, large changes in currency exchange rates (the amount of currency appreciation or depreciation) may cause a certain degree of "chaos" to the macroeconomy. Therefore, under normal circumstances, most countries strive to keep their currency exchange rates stable.