Question: Your client has asked you to construct a 2 million bond portfolio. Some of the bonds that you are considering for this portfolio have embedded

Your client has asked you to construct a 2 million bond portfolio. Some of the bonds that you are considering for this portfolio have embedded options. Your client has specified that he may withdraw 25,000 from the portfolio in six months to fund some expected expenses. He would like to be able to make this withdrawal without reducing the initial capital of 2 million. A. Would shortfall risk be an appropriate measure of risk while evaluating the portfolios for your client? B. What are some of the shortcomings of the use of shortfall risk?

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=+ b. What can you infer about the expected change in the exchange rate between the Canadian dollar and the U.S. dollar?

=+ d. What happens to Oceanias trade balance?

=+ e. What happens to Oceanias real exchange rate?