A what do the financial markets suggest for inflation

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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? The separation 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:
b. Estimate today's one-year forward exchange rate between the dollar and the euro.
Problem 6.17 Chamonix Chateau Rentals Rent one year from now / PPP forecasted spot rate You are planning a ski vacation to Mt. Blanc in Chamonix, France, one year from now. You are negotiating over the rental of a chateau. The chateau's owner wishes to preserve his real income against both inflation and exchange rate changes, and so the present weekly rent of €9,800 (Christmas season) will be adjusted upwards or downwards for any change in the French cost of living between now and then. You are basing your budgeting on purchasing power parity (PPP). French inflation is expected to average 3.5% for the coming year, while U.S. dollar inflation is expected to be 2.5%. The current spot rate is $1.3620/€. What should you budget as the U.S. dollar cost of the one week rental?
Problem 6.18 East Asiatic Company -- Thailand c. If EAC could borrow Thai baht at 13% per annum, would this be cheaper than either part (a) or part (b) above? Assumptions Value Current spot rate, Thai baht/$ 32.06 Expected Thai inflation 4.300% Expected dollar inflation 1.250% Loan principal in U.S. dollars $250,000 Thai baht interest rate, 1-year loan 12.000% US dollar interest rate, 1-year loan 6.750% First, it is necessary to forecast the future spot exchange rate for the baht/$. PPP forecast of Thai baht/$ 33.0258

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