IRP Application to Short-Term Financing Assume that the U.S. interest rate is 7 percent and the euros
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IRP Application to Short-Term Financing 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: “Interest rate parity does not hold; therefore, U.S. firms could lock in a lower financing cost by borrowing euros and purchasing euros forward for 1 year.” Explain your answer.
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