You are an independent investment advisor who is assisting John Grant, the head of the investment committee of Carlton Technology Limited, to establish a new pension fund. John asks you about international equities and whether the Investment Committee should consider them as an additional asset for the pension fund.

a. Explain the rationale for including international equities in Carlton's equity portfolio. Identify and describe three relevant considerations in formulating your answer.

b. List three possible arguments against international equity investment and briefly discuss the significance of each.

c. You are a U.S. investor considering the purchase of one of the following securities. Assume that the currency risk of the Canadian government bond will be hedged, and the six-month discount on Canadian dollar forward contracts is -0.75% versus the U.S. dollar.

Bond	Maturity	Coupon	Price
U.S. government	6 months	6.50%	$100
Canadian government	6 months	7.50%	$100

Calculate the expected price change required in the Canadian government bond that would result in the two bonds having equal total returns in U.S. dollars over a six-month horizon. Assume the yield to maturity on the U.S. bond is expected to remain.