It is defined as the rate paid by the exchanger for holding the money of the lender.
The dissimilarity in the rate of interest affects the worth of money comparative to another.
The rate of interest dictates investment flows. A raise in the rate of interest in a specific nation encourages the investment in that specific country as it provides high returns. This increases the demand for currency. As the demand increases, it starts becoming scarcer and therefore is more appreciated. When the Central Banks alter the rate of interest, value of their money related to another currency also starts altering. Nations that experience cutting of therate of interest experience depreciation of currency.
Nominal versus Real Interest Rates
A nominal interest rate is the charge of return without adjustments for the inflation. The actual rate of interest is regarded as nominal rate subtracted from the inflation effect.