I am reading the CFA Level 2 Economics section and I came across this statement:
In emerging markets, capital flows may be restricted. In that case, impact of trade balance on exchange rate (goods flow effect) is greater than the impact of interest rates (financial flows effect). In such a case, expansionary fiscal policy or monetary policy leads to increases in net imports, leading to depreciation of domestic currency
My question is: how can expansionary fiscal policy which results in an increase in interest rate cause depreciation of currency?