A decrease in the policy interest rate has no impact on aggregate demand, because lower borrowing costs do not influence investment or net exports.

Depreciation of the currency reduces net exports because domestic goods become more expensive for foreign buyers.

Lowering the policy interest rate reduces the return on domestic financial assets, decreasing demand for the domestic currency and causing it to depreciate.

When the policy interest rate is lowered, the domestic currency appreciates, since investors anticipate a stronger domestic economy.

A cut in the domestic policy rate, while foreign rates remain unchanged, can lead to capital outflows that weaken the currency.

Raising the policy interest rate increases the return on domestic assets, attracting foreign capital, raising demand for the domestic currency, and causing appreciation.

Exchange rates are determined solely by trade flows and are unaffected by changes in interest rates.