How do interest rates generally affect capital flows and the value of a currency?

Interest rates play a crucial role in determining capital flows and the value of a currency. When a country raises its interest rates, it often attracts foreign investors looking for better returns on their investments. This increase in demand for the country's assets can lead to more capital flowing into that country, which can strengthen its currency's value. For example, if the United States increases its interest rates, investors from other countries might want to invest there, leading to more dollars being bought and thus increasing the dollar's value compared to other currencies. Conversely, if interest rates are low, capital may flow out as investors seek higher returns elsewhere, weakening the currency.