$$Trans$-$Atlantic Quotes.$$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:

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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.

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Part $1$

a$.$ What do the financial markets suggest for inflation in Europe next$$ year? Starbucks $($Croatia$).$ Starbucks opened its first store in Zagreb, Croatia in October $2010.$ In Zagreb, the price of a tall vanilla latte is $25\mathrm{.}67$ Croatian kuna $($kn$).$ In New York City, the price of a tall vanilla latte is $\backslash (\backslash$$ $2\mathrm{.}65\backslash ).$ The exchange rate between the Croatian kuna and U$.$S$.$ dollar is $\backslash (\backslash$mathrm$\{$kn$\}5\mathrm{.}6288=\backslash$$ $1\mathrm{.}00\backslash ).$ According to purchasing power parity, is the Croatian kuna overvalued or undervalued?

The percentage of overvaluation or undervaluation is

$\backslash \%.($Round to two decimal places.$)$ arbitrage between U$.$S$.$ dollars and Japanese yen. He faced the following exchange rate and interest rate quotes:

The CIA profit potential is $\backslash \%,$ which tells Takeshi Kamada that he should borrow and invest in the higher yielding currency, $,$ to lock in a covered interest arbitrage $($CIA$)$ profit. $($Round to three decimal places and select from the drop$-$down menus.$)$

Data table

$($Click on the following icon $\backslash (\backslash$square $\backslash )$ in order to copy its contents into a spreadsheet.$)$ from the respective areas: $.$

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 $\backslash \%.($Round to three decimal places.$)$

Data table

$($Click on the following icon in order to copy its contents into a spreadsheet.$)$

$\backslash$begin$\{$tabular$\}\{$lcc$\}$

& London & New York $\backslash \backslash$

$\backslash$hline Spot exchange rate $($USD $=$ EUR$1\mathrm{.}00)$ & $1\mathrm{.}3262$ & $1\mathrm{.}3262\backslash \backslash$

$1-$year Treasury bill rate & $\backslash (3\mathrm{.}896\backslash \%\backslash )$ & $\backslash (4\mathrm{.}502\backslash \%\backslash )\backslash \backslash$

Expected inflation rate & Unknown & $\backslash (1\mathrm{.}247\backslash \%\backslash )\backslash \backslash$

$\backslash$hline

$\backslash$end$\{$tabular$\}$