I need explanations

Problem 6.16 Separated by the Atlantic The sepearation of over 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: Frankfurt Assumptions Spot exchange rate ($/) One-year Treasury bill rate Expected inflation rate London 1.3264 3.900% Unknown New York 1.3264 4.500% 1.250% a. What do the financial markets suggest for inflation in Europe next year? b. Estimate today's one-year forward exchange rate between the dollar and the euro. a. What do the financial markets suggest for inflation in Europe next year? According to the Fisher effect, real interest rates should be the same in both Europe and the US. Since the nominal rate = [(1+real) x (l+expected inflation) ] -1: 1 + real rate = (1 + nominal) / (1 + expected inflation) 1 + nominal rate 1 + expected inflation So 1 + real = and therefore the real rate in the US is: 103.900% ? 103.210% 104.500% 101.250% 103.210% 3.210% The expected rate of inflation in Europe is then: 0.669% b. Estimate today's one-year forward exchange rate between the dollar and the euro. Spot exchange rate ($/) US dollar one-year Treasury bill rate European euro one-year Treasury bill rate One year forward rate ($/) 1.3264 4.500% 3.900% 1.3341 Problem 6.16 Separated by the Atlantic The sepearation of over 3,000 nautical miles and five time zones, money and foreign exchange markets in both London and New York are very efficient. The following information has been collected from the respective areas: Frankfurt Assumptions Spot exchange rate ($/) One-year Treasury bill rate Expected inflation rate London 1.3264 3.900% Unknown New York 1.3264 4.500% 1.250% a. What do the financial markets suggest for inflation in Europe next year? b. Estimate today's one-year forward exchange rate between the dollar and the euro. a. What do the financial markets suggest for inflation in Europe next year? According to the Fisher effect, real interest rates should be the same in both Europe and the US. Since the nominal rate = [(1+real) x (l+expected inflation) ] -1: 1 + real rate = (1 + nominal) / (1 + expected inflation) 1 + nominal rate 1 + expected inflation So 1 + real = and therefore the real rate in the US is: 103.900% ? 103.210% 104.500% 101.250% 103.210% 3.210% The expected rate of inflation in Europe is then: 0.669% b. Estimate today's one-year forward exchange rate between the dollar and the euro. Spot exchange rate ($/) US dollar one-year Treasury bill rate European euro one-year Treasury bill rate One year forward rate ($/) 1.3264 4.500% 3.900% 1.3341