# Assume that the U.S. interest rate is 7 percent and

### Question Description:

Assume that the U.S. interest rate is 7 percent and the euro’s interest rate is 4 percent. Assume that the euro’s forward rate has a premium of 4 percent. Determine whether the following statement is true: ?oInterest rate parity does not hold; therefore, U.S. firms could lock in a lower financing cost by borrowing euros and purchasing euros forward for one year.?? Explain your answer.