inflation and the real economy. second, the interest rate should provide a reasonable balance between the path for inflation and the path for capacity utilisation. in the assessment, potential effects of property prices and the krone exchange rate on the prospects for output, employment and inflation are also taken into account. the various factors that influence interest rate prospects are now pointing in different directions. as a result of the financial market turbulence and uncertainty about developments in the us, market expectations concerning economic growth and central bank key rates have fallen, in both the short and long term. the federal reserve has reduced its key rate by 3 percentage points since september 2007 and interest rates are again moving down in the us and a number of other countries. interest rates are being cut to address weaker economic growth prospects. however, in view of the high level of unsold homes and properties in the us, it is uncertain whether the interest rate weapon will be as powerful as in the past. thus, there is a risk that the us economy is entering into a downturn in spite of the interest rate cuts. should weaker developments in the us lead to a broad - based pause in global growth, there may be a number of repercussions for the norwegian economy. first, a downturn in the world economy may adversely affect activity and profitability in export industries and perhaps even the oil sector. it may be more difficult to sell goods in a falling market, and prices for domestically produced goods may fall. second, turbulence and weaker growth prospects may increase uncertainty among norwegian households and businesses. as a result, new projects and investments may be postponed, or enterprises may be reluctant to recruit new employees. third, the financial market turbulence has a more direct impact on the business sector. banks and investors now apply a higher premium and higher prices for providing capital for acquisitions, restructuring and investment, and highly leveraged companies have to pay high loan risk premiums. falling external interest rates have resulted in a wider interest rate differential against other countries. this may lead to a stronger krone, but there are also opposing forces in the foreign exchange market. in the long run, the krone exchange rate is determined by changes in the terms of trade and permanent differences between domestic and external inflation and productivity. but the krone exchange rate also shows monthly and yearly fluctuations. the krone was strong towards the end of the previous cyclical expansion, but depreciated when interest rates declined in 2003. thereafter, the krone appreciated again

it has been widely adopted in a number of fields and proven to be successful. the tool however is a double edged knife and the financial sector has vindicated such a conviction. 5. one of the causes of the subprime bubble is the pay structure adopted by financial institutions in launching subprime products. during the subprime cycle, most financial institutions pursued a compensation scheme which gave incentives to all personnel involved in the subprime products to chase after high income through risky trading, launching risky products that generally provided higher rates of return. bonus payments for successful and senior investment bankers, including those in the business holding subprime positions, were very substantial. essentially, bonuses were measured against gross revenue after personnel costs, with no formal account taken of the quality or sustainability of those earnings. we have to admit that greed is part of our human nature. in the face of profit, quality of product and hence the revenue derived therefrom could be compromised. the phenomenon was common among institutions and staff involved in the subprime trade, from top management, originators, agents to traders. 6. all enterprises, not confined to financial institutions, should learn from this lesson that, to maintain the sustainable growth of an entity, all compensation schemes should in future adequately reflect performance in the medium and long term as well. as a matter of fact, the compensation schemes for staff involved in the subprime bubble all had a common feature in that there were enormous rewards for deals but there was also a failure to impose penalty symmetrically when losses occurred. to put it in a nutshell, a viable compensation scheme should be well structured and be geared to the long term corporate target and strategy rather than short term profit. 7. i hope my opening remarks on risk management and compensation management will kick off a series of discussions on management of other facets of business. experts and seasoned practitioners from different trades are going to share with us their views, experience and insights to resonate with today ’ s theme “ navigating complex challenges through corporate strategies ”. i am sure the conclusions of this conference will enable the attendees to formulate the correct corporate strategies to navigate through uncharted waters of the contemporary global economy. finally, please accept my best wishes for a huge success of this visionary conference. thank you.