How interest rate affects currency I am quite new to economics. I was reading about changes in interest rates and its effect on currency value. 

The fact is as interest rates increases, the currency value also increases and vice versa. However I want to understand the reason.

At first, I thought following: As interest rate increase, people borrow less, spend less, so cost of goods decreases, value of currency increases.

However when I read in investopedia, it says following:


  Generally, higher interest rates increase the value of a given country's currency. The higher interest rates that can be earned tend to attract foreign investment, increasing the demand for and value of the home country's currency. Conversely, lower interest rates tend to be unattractive for foreign investment and decrease the currency's relative value.


Q1. Now I dont understand what does it mean by increasing the demand for and value of the home country's currency. What is it meant by demand for currency by foreign investors?

In another article it says:


  The rise of interest rates in a country often spurs inflation, and higher inflation tends to decrease the value of a currency. 


But on the same page, it says:


  Generally, higher interest rates increase the value of a given country's currency. 


Q2. Why these two different statements are there?

If I understand it correct, the word "spurs" here means increases inflation. But this confuses me.

My understanding is: 


interest rate increases, people can borrow less, spend less, economy slows, inflation decreases, currency value increases
interest rate decreases, people borrow more, spend more, economy grow, inflation increases, currency value decreases


Q3. Are these understanding correct in general (though I understand the relation is not that straight forward and there are other factors too that affects currency value / inflation)?
Its important to keep in mind that the exchange rate is a &quot;price for currency&quot; and just like any other price it is determined by supply and demand. The main question now is what determines supply and demand for currency?
There are two main models that tell us how exchange rates behave based on the two main forces driving demand (and supply) for currency.
One factor is trade of goods (the goods market). If foreigners buy our goods they need our currency, so they demand our currency and higher demand ceteris paribus (all else staying constant) leads to a higher price and the value of the domestic currency increases. Based on such considerations in the goods markets we have the model of Purchasing Power Parity (PPP). However empirically it does not always hold and in reality it is mostly expected to hold in the long run.
Answer to Q1: Beyond the goods market discussed above, the second main factor is the capital market and that is what Investopedia is referring to. This gives rise to the model of Uncovered Interest Rate Parity, called UIP (there is also a &quot;Covered Interest Rate Parity Model&quot;). This says that if interest rates are higher in the domestic country compared to the foreign country, then foreign investors would like to invest in our country to get the higher returns. To do so they need our currency. So they buy it (demand it) and therefore as long as supply of currency doesn't increase (the central bank printing more money) the price and value of a currency must increase. Also note that there's no reason to expect the central bank to change the supply in a floating exchange rate regime, which most countries have (i.e. there is no attempt to intervene in the exchange rate to keep it fixed).
Answer to Q2: It is not necessarily true that a higher interest rate should increase inflation in general. However increasing the interest rate can decrease inflation. Your understanding of inflation is correct. The second part of the second quote you gave, that higher inflation decreases the value of the currency, however is correct. This is due to the first model we discussed, the PPP. The idea is that inflation makes goods more expensive and therefore our goods have less foreign demand, which leads foreigners to have less demand for our currency (they buy less of our goods so they need less of our money to buy our goods) and less demand for the currency reduces the value of the currency.
Answer to Q3: I believe this follows from the general discussion above.