The one$-$year interest rate is $6\%$ in the U$.$S$.$ and $4\%$ in the Eurozone. On the other hand, the one$-$year inflation is $4\%$ in the U$.$S$.$ and $1\%$ in the Eurozone. The spot exchange rate is $$\frac{1\mathrm{.}50}{}.$

a$)$ When the $1-$year forward market exchange rate is $$$\frac{1\mathrm{.}60}{}$lon. Figure out the one$-$year forward premium$/$discount for euro. $(20$points$)$

b$)$ What is the equilibrium one$-$year forward exchange rate based on Interest Rate Parity $($IRP$)?(20$points$)$

c$)$ What is the equilibrium one$-$year forward exchange rate based on Purchasing Power Parity $($PPP$)?(20$points$)$

d$)$ Given the difference between the forward market exchange rate of $$$\frac{1\mathrm{.}60}{}$ and the equilibrium forward exchange rate based on IRP or PPP$,$

i$)$ Which currency is underpriced$/$undervalued on the forward market? Dollar or euro? $(20$points$)$

ii$)$ Which position do you want to take on the forward market? A long position or short position for euro? $(20$points$)$