How does capital flight affect exchange rate?
When a country experiences capital flight, what is the effect on its interest rate and exchange rate? Capital flight is a large and sudden movement of funds out of a country. Capital flight causes the interest rate to increase and the exchange rate to depreciate.
A trade restriction increases net exports for a given exchange rate and, therefore, increases the demand for dollars in the market for foreign-currency exchange. … In particular, political instability can lead to capital flight, which tends to increase interest rates and cause the currency to depreciate.