Spot exchange rate for euro/dollar = 1 euro Estimated spot exchange rate after 1 year for Euro/dollar = 0.97 Euro European interest rate per year = 4% U.S. interest rate per year = 5%

Find the equilibrium exchange rate under the terms of the above transaction(The equilibrium exchange rate is presented as the euro-denominated amount per dollar).

And if European assets have a 3% risk premium, explain to which country the funds will be transferred.