Suppose the one-year forward exchange rate is 1.26 dollars per euro and the spot exchange rate is 1.20 dollars per euro. What is the forward premium on euros (the forward discount on dollars)? What is the difference between the interest rate on one-year dollar deposits and that on one-year euro deposits (assuming no repayment risk)?

(Please state which one is larger.)

hint: forward premium is defined as (F_t+1-E_t)/E_t