Consider three countries, Balamb, Dollet, and Esthar, with currencies B$, D$, and E$, respectively. All three countries trade with one another. You live in Balamb and currently have B$500. The nominal interest rate in Balamb is iB = 0.011, the nominal interest rate in Dollet is iD = 0.060, and the nominal interest rate in Esthar is iE = 0.012. The spot rates are EB/D = 0.70 and EB/E = 1.19. The forward rates are FB/D = 0.68 and FB/E = 1.25.

5.1 Which of the following scenarios provides the highest B$ tomorrow?

A Buying bonds in Balamb

B Converting B$ to D$ and buying bonds in Dollet with a forward contract

C Converting B$ to E$ and buying bonds in Esthar with a forward contract

D Indifferent between A and B

E Indifferent between A and C

F Indifferent between B and C G Indifferent between A, B, and C