Problem 6.16 Separated by the Atlantic The sepearation of over 3,000 nautical miles and five time zones, money and foreign exchange markets in both London and New York are very efficient. The following information has been collected from the respective areas: Assumptions Spot exchange rate (S/E) One-year Treasury bill rate Expected inflation rate London 1.3264 3.900% Unknown New York 1.3264 4.500% 1.250% a. What do the financial markets suggest for inflation in Europe next year? b. Estimate today's one-year forward exchange rate between the dollar and the euro