Briefly describe how your answer to Part a might change with the use of currency-hedging techniques.

Hans Kaufmann is a global fixed-income portfolio manager based in Switzerland. His clients are primarily U.S.-based pension funds. He allocates investments in the United States, Japan, Germany, and the United Kingdom. His approach is to make investment allocation decisions among these four countries based on his global economic outlook. To develop this economic outlook, Kaufmann analyzes the following five factors for each country: real economic growth, inflation, monetary policy, interest rates, and exchange rates.

When Kaufmann believes that the four economies are equally attractive for investment purposes, he equally weights investments in the four countries. When the economies are not equally attractive, he overweights the country or countries where he sees the largest potential returns.

Table 1 through Table 5 present relevant economic data and forecasts.

a. Indicate, before taking into account currency hedging, whether Kaufmann should overweight or underweight investments in each country. Justify your position.

b. Briefly describe how your answer to Part a might change with the use of currency-hedging techniques.