The paper evaluates the effectiveness of high interest rate policy in stabilizing the exchange rate during the Korean crisis, based on a nonlinear impulse response function approach. We find that high interest rates induce depreciation for a very short period, followed by a substantial appreciation for an extensive period. In contrast, a low interest rate policy would appreciate the exchange rate only for a very short period but have little impact afterwards. Our empirical findings suggest that the IMF`s interest rate policy in Korea contributed to the stabilization of the exchange rate.