Today's spot exchange rate: 1 euro = $1.25. US interest rate (home interest rate) is 7%. EU interest rate (foreign interest rate) is 10%. a) If the IRP (Interest rate parity) holds, what should the...

Today's spot exchange rate: 1 euro = $1.25.
US interest rate (home interest rate) is 7%.
EU interest rate (foreign interest rate) is 10%.
a) If the IRP (Interest rate parity) holds, what should the forward exchange rate be today?
b) Assume that today, you invest $500 in the EU market for one year and at the same time, enter a currency forward contract to sell euro in a year at the forward rate from part a). If today's spot exchange rate is: 1 euro=$1.32 instead of $1.25, show how much profits or losses you make next year.