Question

Trans-Atlantic Quotes. Separated by more than​ 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: London New York Spot exchange rate ($/€) 1.3268 1.3268 1-year Treasury bill rate 3.902 % 4.497 % Expected inflation rate Unknown 1.248 % a. What do the financial markets suggest for inflation in Europe next​ year? b. Estimate​ today's 1-year forward exchange rate between the dollar and the euro. a. What do the financial markets suggest for inflation in Europe next​ year? The rate the financial markets suggest for inflation in Europe next year is nothing​%.

Answer 1

Answer:

Trans-Atlantic Quotes.

Separated by more than? 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:

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 next? year?

b. Estimate? today’s 1-year forward exchange rate between the dollar and the euro. ?(Round to three decimal? places.)

Explanation: Because this is known that the SER is about 1.3265 1.3265 the expected inflation rate would be a ?

1.247