Normally, higher interest rates in a country cause the ___ for that country's currency to increase as money flows to the higher interest rates. This depends on the perceived ___.
For the first blank I have "demand", but I'm not sure about the second blank?
For the second blank, the correct answer is "return" or "yield".
Here's an explanation on how to arrive at the answer:
When interest rates in a country are higher compared to other countries, it attracts foreign investors who seek to earn higher returns on their investments. These investors will convert their currencies into the higher-yielding currency to make investments. As a result, the demand for that country's currency increases, leading to an increase in its value compared to other currencies.
The key factor that influences this phenomenon is the perception of the return or yield on the investment. If investors believe that the return on the investment will be higher due to higher interest rates, they will be more inclined to convert their currencies and demand the higher-yielding currency. Therefore, the perceived return or yield is an essential aspect that determines the movement of currency exchange rates.