1. The (Euro) is trading at $1.1100 versus the USD. A basket of goods in the US costs $100 and 108 in Europe. For the next year, the US Federal Reserve Bank forecasts inflation to be 8.0%. In Europe, the ECB expects inflation in the Eurozone to equal 10.5% Assume that the central banks' forecasts are correct: (10 pts.) a. What is the expected differential between US and Eurozone inflation rates for the next year? b. What is the current real $/ exchange rate (qus/Eur)? C. Is the US dollar under- or overvalued? By how much? d. Is this information likely to be useful in predicting where the nominal US $/ exchange rate will be in one year? Why or why not?