What happens to the nominal exchange rate when the USs rate

What happens to the nominal exchange rate when the US\'s rate increases and prices rise faster in the US than abroad?

Solution

The nominal exchange rate E is defined as the number of units of the domestic currency that can purchase a unit of a given foreign currency. A decrease in this variable is termed nominal appreciation of the currency. (Under the fixed exchange rate regime, a downward adjustment of the rate E is termed revaluation.

If US currency appreciated imports to US become costlier and exports out of US become attarctive.