Finance, Forex and Investments

How do interest rates affect the value of the dollar?

What does it mean when for the economy when interest rates are raised, lowered, or kept at the same rate?

Public Comments

1. To cool the economy & put breaks on inflation, spending should be discouraged.Governament do so by increasing interest rates, while on the other hand lowering interest interest rate encouarge spending, both on consumers side & businesses.Moreover this tunning also determine if you should invest in stocks or bonds.For how interest rate affect stocks go to the following link http://www.investopedia.com/articles/06/interestaffectsmarket.asp
2. interest rate used to curb inflation rate and to protect currency as well. when government raise interest rate, business have to pass the extra cost to consumer. with the escalated price, affected consumer will slowdown their spending habit. with less spending, lower demand will eventually drive things cheaper (low inflation).
3. When a government's central bank increases the short term lending (interest) rates, then bond yields go up. This slows economic activity and tends to reduce inflation over time, in that country. But the higher yielding bonds are now more attractive to foreign bond investors. As the foreign money flows into this domestic bond market, these investors have to convert their money into the domestic currency first. This increases the demand for the domestic currency thereby increasing its value relative to other currencies. Of course, this works in reverse if we start with a decrease in the central bank lending rate.
4. If the interest rates were raised to 50% then everybody in the World would sell their currencies and buy USD and the USD will be the strongest currency in the World. If the interest rates were reduced to 1% then everybody in the United States of America would sell their USD and buy other currencies and the USD will be the weakest currency in the World. I am talking about the people with bank accounts with their money invested in the United States of America and not everybody in the World or everybody in the United States of America. Interest Rates is only one factor of thousands affecting the value of the USD.