Find the paragraphs of the text dealing with the following concepts.

1) crisis management; 2) the role of the leader; 3) a company’s reputation; 4) a crisis as a threat to an organisation; 5) the necessity to assess potential hazards; 6) three elements of crises; 7) risk management; 8) prevention is better than cure; 9) the most significant business risks.

 

V. Additional Reading

Read the texts to learn more about the problem under discussion.

Risk and Return

Risk is the possibility for loss on an investment, and return is the profit or loss made on an investment. Risk and return have a direct relationship – the higher the risk of the investment, the greater the possible return.

While savings deposits in banks are insured against loss, most investments carry some possibility of losing part of the money invested. Return may refer to the interest paid on a savings account or the increase in value of a stock over time. Most investors try to balance risk and return through diversification, the practice of distributing investments among different financial assets to maximize return and limit risk.

When most investors think about risk, they think about the possibility of losing some of their initial investment, often referred to as their principal. Even if they don’t earn a lot of money on the investment, they want to get back at least what they put in. Investments that guarantee no loss of principal include insured savings deposits.

One of the biggest risks investors face is loss of the purchasing power of the money invested due to inflation. (Remember that inflation is a general rise in the level of prices.) That is why many financial advisers warn against investing everything in safe investments that pay a guaranteed rate of interest that may not keep up with inflation.

Other investments, such as stocks and corporate bonds, carry a higher degree of risk because the return depends on how profitable the company is. Investors who purchase stock with the expectation that it will appreciate in value over time may lose some of their money if the company runs into problems or other economic factors affect the value of the stock. In that case, investors may find that they cannot sell the stock for as much as they paid for it, and they suffer a loss. Investors in corporate bonds face similar risks, although bonds are considered less risky than stocks because creditors such as bondholders are paid off before stockholders if a company has financial problems.

How can you balance risk and return?

When making investment decisions, investors estimate what kind of return they expect to earn. The safest investments, such as interest-bearing savings accounts, generally offer the lowest return in the form of fixed rates of interest. The returns on stocks and bonds are not guaranteed and may vary considerably at different times, depending on how the company you invest in performs and the state of the economy as a whole. Generally, stocks provide a higher return over time than do other investments.

Risk and return are directly related – the greater the possible return, the higher the risk that the investment will lose value. Investors always want the highest return possible, but they must balance that desire with a realistic understanding about the level of risk they can tolerate.

Diversification is the most common way for investors to maximize their returns and limit their risks. By spreading out your money in a variety of assets, you have a better chance of offsetting losses from one investment with gains from another. If one investment loses money, the others may do better. For example, when interest rates rise, the value of stocks may decrease, whereas the return on certain bonds may increase. Mutual funds are an easier way to diversify because some funds own both stocks and bonds. Mutual funds are investment companies that pool the funds of many individuals to buy socks, bonds, or other investments. Losses from some investments are offset by gains from other investments.

A high-risk investment may bring large returns, but can you absorb the potential losses? A low-risk return investment may provide a steady return, but because of inflation you may be losing money. How would you decide which type of investment to make?

 

VI. Speaking

A. Giving your opinion