3. Answer the following questions based on the dialogue:

1. How does the Mutual Fund try to overcome crises and protect itself against losses?

2. What methods of risk management does the Fund use?

3. What companies does the Fund invest in?

4. How can the shareholder get his money back?

4. Read and translate Text a Text a

After the sharpest upheaval of the post-war period, the world's industrial countries are struggling, so far with mixed success, to get back on the path of balanced, non-inflationary growth. The United States has probably been the most successful. After a strong burst of growth in output and employment, many observers foresee a sharp slowing in the rate of advance. The shortfall in the recovery to date is easy to identify — a lack of private investment; and its cause — a failure of confidence. The uncertainty that plagues the investment commitment process today is embodied in investment calculations in the form of higher risk premiums and prevents a normal package of capital projects from meeting acceptable financial criteria.

The evidence of debilitatingly high-risk premiums is widespread and disturbing. Even in the United States, two years removed from the low of the cycle, plant and equipment investment is falling far short of what has typically prevailed at this stage of the business cycle. The short-falls appear to be concentrated in long-lived invest­ments, particularly those for which profit expectations are espe­cially skewed towards the later years of the investment: 8, 10, 15 years in the future. Worst hit are investments where high-risk premiums, acting heavily to discount expected future profit, make the present value of those prospective profits minimal.

Short-lived assets, those with rapid rates of cash return, seem closer to normal levels of commitment at this stage of the business recovery. But long-lived assets, particularly those related to major construction projects which typically do not repay their investment costs for many years are still lagging badly.

The bias against long-lived assets is evidenced by new orders for fabricated structural steel, a measure of the most durable of invest­ment assets. After plummeting sharply from the autumn into the spring, orders for fabricated structural steel have recovered only about one quarter of their decline during the past two years.

The rise in investment risk over the past decade is also clearly re­flected in the American stock markets, where price/earning ratios have fallen to the lowest levels in two decades, largely as a conse­quence of the increased discount rate imposed on expected earnings growth. One would expect that the market value for existing assets (that is stock prices) would parallel the expected market prices, or present value of contemplated new capital projects. Instead, real investment parallels with a lag of the ratio of stock prices to an index of the replacement cost of plant and equipment. The latter is a good proxy of the relation between the prospective market value of new investment and the cost of producing that investment. Translated into rate of return equivalents, the larger the ratio, the greater the prospective rate of return implied.

While the causes of this high-degree investment risk vary from country to country, at root is a profound uncertainty of the shape of the future economic environment in which new facilities might be functioning. Although many reasons could be cited, first, and by far the most important is inflation — the fear of an increasing rate in the years ahead, and the instability that would follow it. An inflationary environment makes calculation of the rate of return on investment more uncertain. Even if overall profits advance in line with the rate of inflation, the dispersion of profits among businesses tends to increase as the rate of inflation climbs. The risk of loss rises or, at best, the attainment of profits becomes more elusive.

Thus, a much higher rate of discount is applied to inflation generated profits than to those accruing from normal business operations.

A second, although somewhat smaller, contributor to higher risk premiums is escalating business regulation. Since the rise of concern over health and environment the regulatory process has mush roomed. Regulatory changes have directly increased the cost of new facilities in a major way. However, far worse for capital invest­ment decision-making is the fact that regulations may, indeed will, change in future, but in a way that is unknowable at present. This, rather than known costs, has engendered uncertainty and hesita­tion among businessmen.