Which statement is true regarding the influence of interest rates on currency?

Higher interest rates usually increase currency demand because they offer better returns on investments denominated in that currency. When a country raises its interest rates, it can attract foreign capital as investors seek to take advantage of the higher rates of return on interest-bearing assets like bonds or savings accounts. As foreign investors exchange their own currency for the local currency to invest, the demand for that currency increases, which often results in an appreciation of its value in the foreign exchange market. This relationship is a fundamental principle of economics and finance, linking interest rates, foreign investment, and currency value.

In contrast, the other options do not accurately reflect the dynamics of interest rates and currency. For instance, the notion that higher interest rates would decrease currency value contradicts established financial principles, as typically, it is the opposite that occurs. Additionally, while lower interest rates can sometimes attract investment due to lower borrowing costs, they generally tend to decrease demand for the currency since investors might seek better returns elsewhere. The assertion that interest rates have no relation to currency demand disregards the fundamental economic principles that link these variables.