How does interest rate influence the strength of the currency?

This is called a currency carry trade.

I borrow money at 2% in say US$, and invest it at 7%, in say an Indian rupee bank account.

If you look at interest rates in a country with non-zero interest rates, you will often find that for example the local currency accounts pay high interest rates, while currencies such as the US$, euro, GB£ pay zero.

So the interest rate reflects the currency choice.

Generally a high interest rate is common in a country with an inflationary environment, and high growth. In this case, the interest rate may reflect the fact that the currency is expected to be worth less next year.

If you look at this UK inflation graph

then the UK has had low inflation for a quarter of a century

Meanwhile, the base rate until 2008 was higher

Referring to this Japanese graph, Japan had near-zero rates since the 1990s:

So logically you would say 'I can borrow money in Japan in Yen for little interest, and invest it in pounds at more interest'. And this would make you money because the UK had real growth (i.e. interest was much higher than inflation).

Unfortunately when the 2008 crash hit, the UK and most countries had to reduce interest rates to zero as well. This meant that GBP was much less attractive to compared to countries such as the US with larger economies, and the pound fell in value dramatically compared to the yen.

Even worse happened in Iceland, where there was a lot of money invested in a tiny country, and the currency lost more than half its value

So to summarise:

1. a currency may keep high interest rates to support its exchange rate, because by offering more interest than other countries the currency has more value
2. often but not always this high interest reflects also high inflation, which means the currency will tend to be worth less next year relative to currencies with lower inflation
3. where economic growth stumbles/ there is a financial crisis countries may have to cut interest rates dramatically, and this is likely to result in big falls in currency values
4. where the investor makes use of 1. then he can make money, but when 3. happens he can end up losing far more.