20. Robert Devlin and Neil Parish are portfolio managers at the Broward Investment Group. At their regular Monday strategy meeting, the topic of adding international bonds to one of their portfolios came up. The portfolio, an ERISA-qualified pension account for a U.S. client, was currently 90% invested in U.S. Treasury bonds, and 10% invested in ten-year Canadian government bonds.

Devlin suggested buying a position in ten-year German government bonds; Parish argued for a position in ten-year Australian government bonds.

a. Briefly discuss the three major issues that Devlin and Parish should address in their analysis of the return prospects for German and Australian bonds relative to those of U.S. bonds.
Having made no changes to the original portfolio, Devlin and Parish hold a sub-

sequent strategy meeting and decide to add positions in the government bonds ofJapan, United Kingdom, France, Germany, and Australia.

b. Identity and discuss two reasons for adding a broader mix of international bonds to the pension portfolio.