IRP application to short-term financing. Assume that the UK interest rate is 7 per cent and the euro’s interest rate is 4 per cent. Assume that the euro’s forward rate has a premium of 4 per cent (is 4 per cent more expensive in terms of £s). Determine whether the following statement is true: ‘Interest rate parity does not hold; therefore, UK firms could lock in a lower financing cost by borrowing euros and purchasing euros forward for 1 year.’ Explain your answer.