How would an increase in interest rates affect investment?

Would a business invest more or less if there was an increase in interest rates and why?
Also how does an increase in interest rates affect the value of the British Pound? Does it become more in value or less and why?
Thanks, this whole process of interest rates and investment confuses me alot!!

Depends on the business I guess. Your second question affects the first. So I'll try to answer that first. An increase in interest rates usually drives up the value (strength) of the currency. The higher the interest rate, the more foreign money and banks themselves invest in that currency driving up its value due to supply and demand laws.
If they are an exporter, then that is bad news as it becomes dearer for customers abroad to buy their goods and so they lose business. For importers the opposite applies it being cheaper for customers here to buy imported goods due to the strength of the currency which buys you more(more bang foryour buck).
Remember though that if, as most companies have to, that they have to borrow money to invest, then higher rates are obviously a disincentive. However higher rates keep down inflation which is of course is a good thing. You are right to be confused as there is no single, easy solution.Otherwise governments would just keep raising rates or freezing them. Like all markets,balance must be maintained.

A business invest LESS if there is an Increase in interest rates.

If Today the British Prime Minister said "England is now paying 20% Intererest Rate for your money" then everybody will close their bank accounts in the United States of America, Japan, Germany and other countries and move them to England.

That would make the GBP the most expensive currency in the World.

Obviously, GBP is already the most expensive currency in the World so there is no need to to that.

India and Australia could adopt the GBP and that would increase the price of the GBP a lot.

Slightly unclear question. If the interest rate rises it becomes more expensive to borrow but it becomes more profitable to invest in the risk free rate, i.e. depositing money in the bank. The answer is that it depends on the investment and the capital structure of the company. With repect to the currency correlation to the interest rate spunkafke... has nailed the theory which is callled IRP (Interest Rate Parity). Other aspects influence curreny movements also like PPP (purchasing power parity) and traders expectations so dont be surprised if IRP doesnt hold. Eg Eurozone might increase interest rate and USA might not move theres, IRP would state that there would be a flow of funds from the US to the Eurozone given the increased returns investors can receive from higher deposit rates thus increasing the price of the Euro against the Dollar but this might not occur. Traders may believe that future exports from the US to the Eurozone will increase demand for the Dollar over the short term thus mitigating the interest rate effect. Remember currency is traded on a daily basis by only a small number of banks and a small number of individuals and it tends to be quite volatile in its movements. Trying to draw a statistical correlation between a volatile asset such as currency and interest rates (which move maybe twice a year at most) is near on impossible. But theory she gave is correct.

If interest rates increase the cost of borrowing goes up. Most companies use payback models when deciding on potential investment. When they borrow to invest, intrest must be paid on the loan this will increase the cost of the investment and so give it a longer payback time which makes it less attractive so comapnies invest less when there are high intrest rates.

As interest rates go up the pound gets stronger - this is due to the fact that goverment issues securities - high intrest rates attract investment in these securities from abroad i.e. people are buying sterling securities - this increases the demand for the pound. Rise in demand - rise in the price.