Imagine a case, if country A borrows heavily from country B.?

Question

Assume the interest rate of A and B remain constant, will both currency A and currency B appreciate? Since the demand of currency B has increased and A will have to exchange the currency B for currency A in order to be used. Therefore currency A and B will appreicate. Am I right?

Answer 1

If country A borrows heavily from country B, why will the interest rate in country B remain constant? The more people want to borrow, the more the banks will raise interest rates.

So you question is something like, if I were to add 2 and 2 and get three, then would ....

As for the rest of your logic, it is equally flawed.

What is country A going to borrow the money for? If it is for buying goods from country B, then clearly no exchange is needed. If it is for buying goods from a third country, exchange may or may not be needed.

If it is to purchase goods and service within country A, then you'll get major inflation in country A and country A's currency will depreciate.

If it is to purchase consumables, then country A is going to have problems repaying the loans, which means that country will end up selling itself to B for the money.

If it is to purchase capital equipment, to make investments, etc. and the investments are good, then country A may experience the kind of economic boom that will appreciate its currency.