How does a country's monetary policy influence foreign investment in its currency?

A country's monetary policy greatly affects how attractive its currency is for foreign investors. When a central bank lowers interest rates, it usually makes borrowing cheaper, which can lead to more spending and investment within the country. However, lower interest rates can also make the currency less appealing because investors may seek higher returns elsewhere. For example, if the United States lowers its interest rates, foreign investors might choose to invest in countries with higher rates, leading to less demand for the U. S.