This problem requires an understanding of how economic conditions influence interest rates and prices (Chapters 6, 7, 8 and 9 of Financial Markets and institutions Jeff Madura 8th edition). As a financial planning professional, one of his tasks is to prescribe the allocation of funds available between securities market money, bonds and mortgages. Your philosophy Is to assume positions in securities that will benefit most from their predicted changes in economic conditions. As a result of a recent event in Japan, you expect Japanese investors to reduce their investments in US Treasury securities over the next month and will switch most of their funds to Japanese securities. You expect that this diversion of funds will persist for at least several years. He believes that this single event will have a significant effect on economic factors in the United States, such as interest rates, exchange rates and economic growth during the next month. Because US securities prices are affected by these economic factors, you must determine how to revise your prescribed allocation of funds between securities.

8) Suppose you would consider recommending that 20 percent of the funds be invested in foreign debt securities. Check your prescription to include foreign securities if you wish (identify the types of securities and the country).