some cases, this general behaviour is an explicit investment strategy : some investment funds explicitly try to keep the implied volatility of their portfolio at a fixed level. see the market monitor of the office of financial research for the second quarter of 2017 : ‘ the volatility paradox : tranquil markets may harbour hidden risks ’. all speeches are available online at www. bankofengland. co. uk / speeches we need to keep pace. and investors should too. accidents can be avoided if driving speeds are based on the road conditions ahead rather than the price of insurance. ii ) liquidity mismatch in corporate bond markets the second development raising questions about market resilience is actually a combination of two changes in recent years. first, market - makers ( ‘ dealers ’ ) have become less active in their market making. this matters because they play an important role in warehousing bonds between the time a seller wants to sell and the point at which a willing buyer can be found. our research suggests that, in response to asset sales by bond funds, dealers are less willing to see their inventories of corporate bonds increase. the flipside is that market prices respond more to asset sales than they did, to draw in buyers in a short timeframe. post - crisis limits on bank leverage may be a driver of this. if so, then a generally lower level of market - making activity may be the price paid for greater resilience of systemic institutions and their critical activities. the issue is not whether or not to row back on those regulatory standards, it ’ s to make sure the system adapts fully to corporate bond markets being generally less liquid and able to absorb asset sales. in that context, the second development is the growth in the share of corporate bonds held in open - ended mutual funds, particularly those offering the possibility of redemption at just one day ’ s notice. the share of corporate bonds held in open - ended funds in the uk and the euro area has increased by 70 %, and in the united states by 150 %. the question here is whether structures with the shortest redemption notice periods could create a ‘ first - redeemer advantage ’ that encourages greater asset sales during market adjustments. why might that be a possibility? typically investors are offered the ‘ net asset value ’ ( nav ) of the fund when they redeem. this is calculated on market prices for the assets held in the fund. but the market prices of some assets are based - implicitly - on

- ups. those national figures relate to 1997, so they are a little out of date. but more recent figures from the london chamber's report, published last december, on the contribution of asian business to london's economy, suggest that the ethnic minority population manages or owns some 20 % of london's private sector businesses, with the asian community alone accounting for half that - or some 10 % of the total. these figures make a powerful point, which is underlined by the presence of so many asian and nonasian business and professional people here this evening. they illustrate very vividly the great benefit that can accrue to our society, as a whole, from providing the opportunity to all the people in the uk, whatever their background, to realise their full potential and achieve all that they can in their different fields. it underscores the importance of non - discrimination, whether ethnic or religious, sexual or social, to the material as well as the moral progress of our whole community. it is a real pleasure to be with you. in his letter of invitation to me, your chairman - subhash thakrar - suggested that i could talk about anything i wanted to this evening, provided it was the state of the economy, and provided i tell you what precisely will happen to interest rates. let me begin by trying to explain to you what we at the bank - through the mpc - are tasked to do, and why. the task sounds straightforward. it is to set short - term interest rates with the consistent aim of hitting the government's symmetrical 2½ % inflation target ( on a precisely defined measure of retail price inflation - rpix ). now the reason we've been set that task is not - as some people imagine - because either we or the government think that consistently low inflation is the be all and end all of economic life. it is because we've learned from long experience that consistently low inflation is a necessary ( though not in itself sufficient ) condition for the sustained growth of output of the economy as a whole, for high levels of employment, and for rising living standards, which are, of course, more fundamentally the things that we are all seeking to achieve. carrying out our task is not as straightforward as it sounds because there is no simple, direct, link between short - term interest rates - the only instrument we have - and the rate of inflation. interest rates essentially affect the demand side of the economy. they don't