Assignment:
Assume that interest rate parity holds and that 90-day risk-free securities yield 5 percent in the United States and 5.3 percent in Germany. In the spot market, 1 euro equals $0.80 dollar.
a. Is the 90-day forward rate trading at a premium or discount relative to the spot rate?
b. What is the 90-day forward rate?
Provide complete and step by step solution for the question and show calculations and use formulas.