Assume that interest rate parity exists and will continue to exist. As of this morning, the 1-month interest rate in the U.S. was higer than the 1-month interest rate in the eurozone. Assume that as a result of the European Central Bank’s monetary policy this afternoon, the one-month interest rate of the euro increased and is now higher than the U.S. one-month interest rate. The one-month interest rate in the U.S. remained unchanged.

a. Based on the information, do you think the one-month forward rate of the euro exhibited a discount or premium this morning?

b. How did the forward premium change this afternoon?