Trans-Atlantic Quotes. Separated by more than3,000 nautical miles and five timezones, money and foreign exchange markets in both London and New York are very efficient. The following information has been collected from the respectiveareas:

London New York

Spot exchange rate ($/) 1.3265 1.3265

1-year Treasury bill rate 3.904% 4.499%

Expected inflation rate Unknown 1.247 %

a. What do the financial markets suggest for inflation in Europe nextyear?

b. Estimatetoday's 1-year forward exchange rate between the dollar and the euro.

(Round to three decimalplaces.)