Problem:
Suppose 90-day investments in Britain have a 4.40% annualized return and a 1.10% quarterly (90-day) return. In the U.S., 90-day investments of similar risk have a 3.00% annualized return and a 0.75% quarterly (90-day) return. In the 90-day forward market, 1 British pound equals $1.95.
Required:
Question: If interest rate parity holds, what is the spot exchange rate ($/£)?
Note: Show all workings.