Given the information below and assuming efficient markets in Canada and the U.S., answer the following questions:

a. What do the financial markets suggest for inflation in Canada next year?

b. Estimate today's one-year forward exchange rate between the US dollar and Canadian dollar.

Assumptions Canada USA

Spot exchange rate (C$/$) 1.3264 1.3264

One-year Treasury bill rate 3.600% 4.200%

Expected inflation rate Unknown 1.300%