If Coleman Co. needs 100,000 euros in 1 year, it could convert dollars to euros and deposit the euros in a bank today.

Assuming that it could earn 5 percent on this deposit, how much would it need to deposit in order to have 100,000 euros in 1 year:

Assuming a spot rate today of $1.18, the dollars needed to make the deposit today:

Assuming that Coleman can borrow dollars at an interest rate of 8 percent, it would borrow the funds needed to make the deposit, and at the end of the year it would repay the loan: