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All other things being equal, rate of return will surely affect the exchange rate of a currency in an economy.

High rate of return of a currency in an economy will make investors more interested in converting their currency to other currency, currency's demand will rise and exchange rate will also rise. Thus, the currency of an economy experiencing a high rate of return tends to have a strong exchange rate and attract more funds from foreign investors.

DGiven below diagram shows that, with a higher interest rate of currency, demand for currency rises, and the demand curve will shift to rightward direction from$D$to$D_1$whereas the supply curve will shift in leftward direction from$S$to$S_1$. The new equilibrium point is determined at$E\left\{1\right\}$At point, $E_1$, the high-interest rate is determined at $R_1$.

Diagram given brlow