Money and foreign exchange markets in Frankfurt and New York are very efficient. The following information is available. Frankfurt New York

Frankfurt $----$ New York

Spot exchange rate $1\mathrm{.}96494/$$ $/---$

One$-$year treasury bill rate $7\mathrm{.}00\%/5\mathrm{.}25\%$

Expected inflation rate, p$.$a$.$ unknown $/3\mathrm{.}50\%$

$($a$)$ What do the financial markets suggest for inflation in Europe next year $($use the exact formula$)?$

$($b$)$ Estimate today$$s one$-$year forward exchange rate between the dollar and the euro.