Suppose 90-day investments in Europe have a 5% annualized return. In the United States, 90-day investments of similar risk have a 7% annualized return. In today’s 90-day forward market, €1 equals $1.32. If interest rate parity holds, what is the spot exchange rate ($/€)?

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Suppose 90-day investments in Europe have a 5% annualized return.
In the United States, 90-day investments of similar risk have a 7%
annualized return. In today’s 90-day forward market, €1 equals
$1.32. If interest rate parity holds, what is the spot exchange rate
($/€)?

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