The money and foreign exchange markets in both London and New York are highly efficient. The following information has been compiled from the respective market locations:

		London		New York
Spot exchange rate ($/)		1.1660		1.1660
1-year Treasury bill rate		0.565	%	0.245	%
Expected inflation rate		Unknown		2.245	%

a. What do the financial markets imply for inflation in the eurozone next year?

b. Estimate today's 1-year forward rate between the dollar and the euro.

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Part 1

a. What do the financial markets imply for inflation in the eurozone next year?

The rate the financial markets imply for inflation in the eurozone next year is

%.

(Round to three decimal places.)

b. Estimate today's 1-year forward rate between the dollar and the euro.

The estimate for today's 1-year forward rate between the dollar and the euro is

$

/.

(Round to four decimal places.)