Currency: demand-supply analysis, interest rates and equilibrium quantity

Currency: demand-supply analysis, interest rates and equilibrium quantity

			FC/DC	Equilibrium quantity
DC	Nominal interest rates	↑
DC	Demand	↑ (1)	↑ (DC appreciates)	↑ (1)
DC	Supply	↓ (2)	↑ (DC appreciates)	↓ (2)
	Net effect		↑ (DC appreciates)	NOT significantly affected.

(1) Damand for DC increases to capitalize on the higher interest rate return.
(2) Supply for DC decreases since the current DC holder would like to keep it to get higher interest rate return.