Effects of monetary policy:-

As the interest rates are reduced,

domestic financial and capital assets become less attractive,
thus the foreigners will reduce their position in domestic bonds.
this will increase the demand for the foriegn currency and the exchange rate of
nation's currency will tend to decline.
There are two basic types of monetary policies
we'll see the effects of both one by one
1. Expansionary monetary policy will rise the domestic GDP.
Rise in GDP will increase the demand for imports, which will cause the current a
ccount to decay.
The increase in imports will increase the need to convert domestic to foriegn cu
rrency.
As a result the exchange rate of the domestic currency will decrease.
2 Contarctionary monetary policy will lower thw GDP,
raising the interest rates and
decreasing imports, thus exchange rate increases.