Interest measures the cost of borrowing money from a lender and is usually expressed as an annual percentage of the principal. |
Interest costs depends on the inflation rate, the credit risk of the borrower and the time value of money.
In FX, higher interest rates make holding the national currency more attractive to foreign investors, and the higher level of demand will place upward pressure on its value. However, higher interest rates make borrowing less attractive which may slow investments, consumption, and employment leading to slower economic growth.