How can a currency crisis lead to higher interest rates? Large federal

QUESTION

How can a currency crisis lead to higher interest rates?
Large federal deficit will push the interest rates upward, whenever the earnings of federal government exceeds its earnings it runs out of the funds to finance the expenditures and in such case it needs funds to finance these expenditures. To finance these excess expenditure federal government need to borrow the funds from the market by issuing bonds or by taking loans, in either case the demand of the money in the market increase which will lead to increase in the interest rate. Whenever the¦

d for money increases the interest rates also increases and vice versa. When the budget deficit is high, federal government issues large quantity of bonds to finance the deficit and in this case the government is forced to offer higher rates of interest to sell enough bonds which will also lead to rise in interest rates in the market.

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