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Disadvantages

Interest Rate Risks

Variations in interest rates of a country have an effect on currency exchange rates.

Such as if a country’s interest rates rise, its currency will strengthen due to an increased inflow of investments in that country’s assets, as people would expect higher returns. Alternatively, if interest rates fall, its currency will weaken as investors would start to withdraw their investments.

Due to this relation of the interest rates and exchange rates, the differential between currency values can drive forex prices to change dramatically.

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