of a " run " – i. e. a situation where all policyholders simultaneously seek to redeem their savings at short notice – is virtually non - existent. let me emphasise that financial stability cannot merely be defined as the lack of " runs ". this is an essential precondition, but not sufficient in itself. as i have already said, the focus is on the functioning of the financial system, and in that respect confidence is of paramount importance. it is essential that pension savers trust the pension companies, i. e. that they feel confident that the money will be there when it is pay - out time. the best way to ensure that is for the assets of the pension companies to fluctuate in step with the liabilities when the economic assumptions change. " traffic lights " today, pension companies focus more on risk management and risk hedging than they did 5 - 10 years ago. the danish financial supervisory authority has prepared risk scenarios – known as traffic lights – which are " snapshots " used to test the robustness of the pension companies to negative market development. the principle behind the traffic lights is to visualise the pension companies'investment and insurance risks so that the pension companies have time to react to a changing risk scenario before it is too late. this has undoubtedly helped to make the danish pension sector more robust to financial and insurance risks. this has also been necessary in an increasingly more globalised world where external shocks are also reflected in the danish economy. the introduction of new, more complex financial products makes great demands on the pension sector, but also on the authorities. it is important that the boards and managements of the pension companies understand the underlying risks in relation to a given investment or liability. otherwise they may be in for a nasty shock one day. a case in point is the failure of ltcm in 1998. long - term capital management was a large us hedge fund specialising in building up large geared positions across several markets, financed via loans from numerous us and european financial institutions. ltcm sought to exploit imperfections in the market. the success of the strategy depended on a number of assumptions concerning the underlying market correlations and volatilities. however, with the nobel prize winners myron scholes and robert merton on board things could not go wrong! nevertheless, they did. the underlying assumptions proved not to be valid in the face of turbulent market conditions, and in 1998 ltcm folded after losing 4. 6 billion dollars in less than

disposal. these are intervention using the foreign - exchange reserve, and the short - term interest rate. the foreign - exchange reserve is used to manage small fluctuations in the supply of and demand for danish kroner, while the interest rate is only used in connection with imbalances of a more sustained nature. as players in the international capital markets, the pension companies may influence the exchange rate by purchasing and selling securities. it is therefore important for danmarks nationalbank to keep abreast of developments within this sector. in connection with major portfolio restructuring we sometimes see large inflows and outflows of currency. if danmarks nationalbank does not act in such a situation, the result could be inappropriate exchange - rate fluctuations. on average, capital imports of kr. 10 billion strengthen the danish currency by kr. 0. 12 per 100 euro. our analyses show that the pension sector's trading in foreign securities contributes to explaining changes in the exchange rate of the krone. it is interesting to note that the significance of this sector to the exchange rate appears to have increased in recent years. our analyses also show that portfolio investments to and from the euro area have a greater impact on the exchange rate of the krone than equivalent portfolio investments to and from the rest of the world. this indicates that market participants are less inclined to hedge the exchange rate on investments to and from the euro area due to denmark's fixed - exchange - rate policy vis - a - vis the euro. portfolio restructuring by pension companies is not problematic. it is a natural element of the free movement of capital, which is a precondition for a well - functioning capital market. fortunately, danmarks nationalbank has competent employees who monitor the day - to - day fluctuations in the foreign - exchange market and are therefore ready to act if the krone strengthens or weakens too much. we also appreciate the credibility enjoyed by denmark's fixed - exchange - rate policy – nationally and internationally. let me take this opportunity to explode a myth. the fact that the danish economy is fundamentally sound, with declining government debt and a savings surplus, is not problematic in relation to maintaining the fixed - exchange - rate policy. any exchange - rate fluctuations arising from portfolio restructuring will only be of a short - term nature. the opposite situation – i. e. a weak economy – might constitute a problem, however. 4. macroeconomic development – from debtor to creditor nation danmarks nationalbank cannot take full