<p>According to uncovered interest parity model, if you raise the domestic currency's bank deposit interest rate, then, ceteris paribus, the currency will appreciate. This can be shown mathematically.</p>

CC BY-SA 3.0
2016-10-21T06:03:36.087Z
Why not adding some parts of that mathematical explanation? That would greatly improve your answer.
clem steredenn
CC BY-SA 3.0
2016-10-21T03:12:11.577Z
2016-10-21T03:12:11.577Z
manity
<p>An interest rate is the return that a lender earns on money lent to someone else. If the interest rate is higher then it makes lending money more attractive because the return is higher.</p>

<p>In particular, if the interest rate in, say, Russia increases relative to that in the USA then American lenders will switch from lending their money in America to lending their money in Russia where the return is greater. But in order to lend money in Russia, these investors are first going to have to convert their dollars into roubles. This increased demand for roubles causes the price of the rouble (i.e. the exchange rate) to increase.</p>

CC BY-SA 3.0
2014-12-16T18:56:17.907Z
2014-12-17T13:19:27.463Z
2014-12-17T13:19:27.463Z
Ubiquitous
<p>Raising interest rates to minimize currency devaluation is being adopted in countries like Brazil and Russia:</p>
<ul>
<li><p><a href="https://www.tradingeconomics.com/brazil/interest-rate" rel="nofollow noreferrer">Brazilian interest rate</a>
<img src="https://i.sstatic.net/l8tLw.png" alt="Brazilian interest rate" /></p>
</li>
<li><p><a href="https://www.tradingeconomics.com/russia/interest-rate" rel="nofollow noreferrer">Russian interest rate</a>
<img src="https://i.sstatic.net/p0c7P.png" alt="Russian interest rate" /></p>
</li>
</ul>
<p>How does raising the interest rate protect the value of a currency?</p>
<p>I am used to seeing news about governments raising interest rates with the aim of protecting their currency. However, I never saw an explanation on how these two things are related.</p>

CC BY-SA 3.0
2014-12-16T20:54:32.967Z
Would you mind clarifying the question and giving more explanation than just the links?
Mathematician
CC BY-SA 3.0
2014-12-17T12:43:59.093Z
Hello @Soccerman, I accept suggestions / reviews. Despite I understand well English language, I'm still learning grammar.
cassioso
<interest-rate><currency><international-economics><government><foreign-exchange>
How does raising the Russian interest rate defend the Ruble from devaluation?
cassioso
# How does raising the Russian interest rate defend the Ruble from devaluation?

(Asked by: username_0 on 2014-12-16)

Raising interest rates to minimize currency devaluation is being adopted in countries like Brazil and Russia:

* [Brazilian interest rate](https://www.tradingeconomics.com/brazil/interest-rate)
  ![Brazilian interest rate](https://i.sstatic.net/l8tLw.png)
* [Russian interest rate](https://www.tradingeconomics.com/russia/interest-rate)
  ![Russian interest rate](https://i.sstatic.net/p0c7P.png)

How does raising the interest rate protect the value of a currency?

I am used to seeing news about governments raising interest rates with the aim of protecting their currency. However, I never saw an explanation on how these two things are related.

**Tags:** interest-rate, currency, international-economics, government, foreign-exchange

> **Comments:**
> **username_1**: Would you mind clarifying the question and giving more explanation than just the links?  
> **username_0**: Hello @Soccerman, I accept suggestions / reviews. Despite I understand well English language, I'm still learning grammar.  

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## 2 answers

### Answer by username_4 on 2014-12-16. Score: 8 | Accepted answer

An interest rate is the return that a lender earns on money lent to someone else. If the interest rate is higher then it makes lending money more attractive because the return is higher.

In particular, if the interest rate in, say, Russia increases relative to that in the USA then American lenders will switch from lending their money in America to lending their money in Russia where the return is greater. But in order to lend money in Russia, these investors are first going to have to convert their dollars into roubles. This increased demand for roubles causes the price of the rouble (i.e. the exchange rate) to increase.


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### Answer by username_2 on 2016-10-21. Score: 0

According to uncovered interest parity model, if you raise the domestic currency's bank deposit interest rate, then, ceteris paribus, the currency will appreciate. This can be shown mathematically.

> **Comments:**
> **username_3**: Why not adding some parts of that mathematical explanation? That would greatly improve your answer.  

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