If interest rates in the U.K. increase, how does this affect the value of the Sterling to other currencies. For example, if I wanted to purchase Canadian Dollars, would I get more dollars for the or less
Barry
Interest rates don't directly affect this. It's the exchange rate that varies and this can vary on a daily basis even if interest rates don't change. This is generally due to currency speculation.
Rob Graham
Theoretically the pound should increase in value if rates go up (so you get more foreign currency for your ), since investors will get a better rate than before, increasing demand for the pound. However if the rate rise is expected then any increase is probably already built into the current exchange rate (investors and speculators buy more pounds in advance expecting rates to increase).
That's my simplistic understanding of it anyway. Of course a whole load of other factors will affect exchange rates too, such as inflation rates, stability of the currency, economy etc.
Thank you very much for the responses. Before I posed the question I trawled the internet but your replies are of value in their simplicity. Trying to find the information from the website of corporate finance is like swimming against the tide from one side of the Atlantic to the other.
Barry
In message , Rob Graham writes
I was taught in my Monetary Theory that it was interest rates that drove exchange rates with market demand sitting on top. Inflation effects it too.
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