You are an investment specialist in a bank, asked to help the relationship manager to answer an existing client's request for fixed income instruments. The first thing you did was to verify his risk aversion. Both capacity and disposition are high, signaling that this customer can invest in any financial instrument. Here are his questions:

1. He does not understand the difference between bonds and sukuk. Please explain him what both are and contrast them (20 points).

2. He heard about another form of fixed income instrument called Collateralised Debt Obligations and was told these structures were complex. Please explain him how CDO's can be structured (20 points).

Fixed income instrument: Collateralised Debt Obligations and was told these structures were complex. Please explain him how CDO's can be structured (20 points).

3. Since he has experience in the market, he is aware of the inherent risks when investing. He would like you to explain how a bond portfolio can be hedged again interest risks. Detail at least 3 hedging strategies (20 points).

Inherent risks when investing: Explain how a bond portfolio can be hedged again interest risks. Detail at least 3 hedging strategies (20 points).

4. He would like you to build a portfolio for him, in one single market (40 points). Here are the constraints.

a. Choose one country in this list: UK, Germany, France, Italy, Switzerland, Australia, New Zealand, Singapore, Canada, USA

b. Build a fixed income portfolio. Amount to invest: 10'000'000 of the respective currency

c. The expected return has to be 100 basis point higher than the risk free rate of the country

d. Minimum rating: B

e. 25% of the portfolio must be invested in a foreign currency

f. Foreign exchange has to be hedged

g. Make sure to present a well enough diversified proposition, using market prices.