To combat persistent domestic inflationary pressures, the Central Bank of a nation increases its main policy interest rate by 3.5%. Over the same period, the central banks of its key trading partners increase their interest rates by an average of 1.2%. What is the most likely direct impact of these interest rate decisions on this nation's economy?
Hot money will flow in, causing the exchange rate to appreciate
Hot money will flow in, causing the exchange rate to depreciate
Hot money will flow out, causing the exchange rate to appreciate
Hot money will flow out, causing the exchange rate to depreciate