Risk Management Introduction - Financial Management

This chapter explores the important area of corporate risk management. As you will recall from , the concept of risk refers to the variability of possible future returns from an investment or, more generally, from any business transaction. Risk is the possibility that the actual cash flows from an investment or any other business transaction will be different from the expected cash flows. There are a number of techniques that companies can use to control and/or eliminate risk. In this chapter, we consider when it is desirable to manage risk using these techniques. Next we look at alternative strategies for managing risk, including the use of derivatives, such as forward contracts, futures contracts, and options. Each of these derivative risk management products is illustrated with an example.

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Financial Management Topics