Interest rate parity and spot exchange rate

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Reference no: EM131075713

(Interest rate parity) suppose 90-day investments in Europe have a 5 percent annualized return and a 1.25 percent quarterly (90-day) return. In the United State, 90-day investments of similar risk have a 7 percent annualized return and a 1.75 percent quarterly return. In today’s 90-day forward market, 1 euro equals $1.32. If interest rate parity holds, what is the spot exchange rate ($/€)?

Reference no: EM131075713

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