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