Interest Rate and Exchange Rate
The question of interest rate arises when currencies are borrowed or lent; whereas exchange rates are involved when different currencies are being bought or sold.
The exchange rate is subject to more fluctuations than interest rates.
Interest rate effect
The interest rate is a factor that affects the exchange rate. High interest rates cause speculative capital move between countries and thus affect exchange rates. Insert rate differentials between two countries is a major factor in determining the forward exchange rates of the two currencies. The currency of the higher interest rate country would be at a discount in terms of the lower interest rate country. Similarly, the currency of the lower interest rate country would be at a premium in terms of the higher interest rate country.