The Wall Street Journal lists forward rates for Euros. Say that the current listings are:
1-month forward rate (indirect) 0.7025
3-month forward rate (indirect) 0.7145
6-month forward rate (indirect) 0.7245
First, is the anticipated inflation rate higher or lower in Europe compared to that in the United States? Second, if the current indirect rate is 0.6994, what do the six-month rate and the current rate imply about the relative difference in the anticipated annual inflation rates? Finally, using the current indirect rate and the 6-month forward rate, determine the annual anticipated inflation rates for Europe if the U.S. inflation rate is anticipated to be 3.15%.