Food Ethics Essay

The ethics surrounding food hasn’t always been a major contributor in ones decision on what to eat. In the beginning, we would have to physically hunt or gather our meals in order to survive. The choice of what was for breakfast, lunch or dinner solely relied on what was accessible to us. The ethical questions would only come as a result of a modernized food system, where other options for food became accessible and convenient. In the essay Consider the Lobster by David Foster Wallace, the author describes lobsters in New England in the 1800’s as having an â€Å"Unbelievable abundance (238). Read more:  Good people analysis  essay These crustaceous creatures were all over the shores of New England. Wallace writes about the Boston seashore as, â€Å"being littered with lobsters after hard storms†¦ (238). † Yet, Lobster were considered â€Å"low-class† and as Wallace states, â€Å"†¦eaten only by the poor and institutionalized (237). † It was considered unethical to even feed the poor lobster â€Å"†¦more than once a week (238). † This was modernized New England, which eventually changed at the turn of the century, just as Lobster shifted from being â€Å"low class† to â€Å"chewable fuel†. As the world became more industrialized, food became centralized. The shift from small businesses to large companies started to occur. The lobster industry changed as well during these times as Wallace describes, â€Å"Maine’s earliest lobster industry was based around a dozen such seaside canneries in the 1840’s, from which lobster was shipped as far away as California†¦ (238). † Just like the lobster industry in New England, many companies in the United States started to fulfill the demands for products to gain a profit. Ethics became secondary to making money. Corporations would produce so much that they would drive the price down, increasing its affordability and making it more accessible and widely consumed. Eventually, large companies would become so efficient and affordable, that small businesses like farms and mom and pop shops found it increasingly difficult to compete. Many small companies and farms had to either adjust their products to niche markets or work as a subsidiary to these corporations. Along with mass production of products, was a new manufacturing process. Foods started to become streamlined in such a way that they would grow in the harshest of environments. These new forms of industrialization lead to the creation of processed foods. The companies found ways to maximize profits while making the costs as affordable as possible for the consumer. The supermarkets offered everything one could think of, packaged and ready to eat. Although the prices for most foods were at an all-time low, hunger and malnutrition still existed. There were also issues arising regarding consumer trust in food safety, and the effects on the human body. As a result of these cost efficient products, people in the United States started to become increasingly heavy, leading to an obesity epidemic and a major health crisis. The ethical issues involving economical behavior of consumers and agricultural ethics are at question. Is it unethical for corporations to mass produce unhealthy foods, knowing the adverse side effects on the environment and growing rates of obesity in the United States? The trend seemed to lead to, the more affordable the food, the more we consume. Is this a personal problem or are the companies to blame for offering these products to us? We must first look into the goals of a business and if ethics play any part in the obligations to supply our population with affordable food. The very basic objective to any business is to create a profit. This is what allows companies to continue function and thrive. The best way for this to happen is to make something that is sellable and where there is room for profit. In the food industry corn is not only a commodity it’s a common ingredient in almost every product on our shelves. According to Michael Pollan, in his book, The Omnivore’s Dilemma, It is also used to feed most of the animals that become meats in our supermarkets. To say that corn is widely used would be an understatement. It seemed that we couldn’t produce enough of this plant. Not only is our climate great for growing it, we also were able to store it very effectively. The boom in corn production can be traced back to the nineteen seventies. Since those same years, â€Å"†¦American’s average daily intake of calories has jumped by more than 10 percent (Pollan 102). † The reason for this increased caloric intake leaves many to question whether people are eating more because it’s less expensive or people are eating the same amounts but the food contains more calories. Either way, the companies that were producing these items didn’t seem to be bothered by the problem affecting â€Å"three of every five Americans being overweight (Pollan 102). † The truth is that the companies are driven by profits. The Americans who consume these foods create the profits. Additionally, a lot of these companies are traded on the public market and have a responsibility to their shareholders, who subsequently are the same ones buying these foods. So the companies were being driven to make profits for the people invested. Two of the biggest soda companies in the world, Coca-Cola and Pepsi, have followed these trends as well. As Pollen says, â€Å"By 1984, Coca-Cola and Pepsi had switched over entirely from sugar to high-fructose corn syrup. Why? Because HFCS was a few cents cheaper than sugar (thanks in part to tariffs on imported sugarcane secured by corn refiners) and consumers didn’t seem to notice the substitution (104). †It’s as if these corn companies were monopolizing the industry, trying to turn-over as much product as possible. The increased production would eventually lead to increased portion sizes. Instead of lowering the prices of products, companies started charging a small upcharge for additional food and soda. This practice of continually turning over product has become so dangerous that now, â€Å"†¦in 2000 the number of people suffering from [overnutrition]-a billion- had surpassed the number suffering from malnutrition-800 million (Pollan 102). † There is clearly something broken with this system. These companies are catering to our consumer appetites and enabling us to act accordingly. You would think that the prices of the food being low would solve our food problems globally, but the answer is unfortunately no. These companies are in places where there is both a market for high sales and where they can grow these crops. Most of the areas that are facing malnutrition are in remote areas of the world. These areas wouldn’t make the companies money and therefor there isn’t an incentive for them. On the other hand, America is of course one of the largest consumer countries in the world. Our desire for food is unsurpassed by most counties. There is no question that Americans have a sweet tooth. It is part of the human makeup to consume high energy foods and is linked to natural selection. According to Pollan, â€Å"Add fat or sugar to anything and it’s going to taste better on the tongue of an animal that natural selection has wired to seek out energy-dense foods (107). † Pollan also suggests that, â€Å"natural selection predisposed us to the taste of sugar and fat (its texture as well as taste) because sugars and fats offer the most energy (which is what a calorie is) per bite (106). It’s only natural for humans to consume these ingredients, because after all we are â€Å"predisposed† to do them. This of course doesn’t mean that we are completely free of blame for our overindulging. We are all individuals and are responsible in formulating our own decisions. The companies which provide us with these calorie-packed foods and beverages also list their nutritional information on the packages. If we were to eat any packaged foods, we would be responsible for understanding the health risks involved. The real problem is whether we have the mental capacity to control our physical urges. There is extensive research that suggests, â€Å"†¦people {presented} with large portions will eat up to 30 percent more (Pollan 106). † At one time in our history, this might have served us. Now, there is no question that our bodies are becoming poisoned from this. Knowing all of this information, companies continue doing their best to offer these calorie-packed foods. This is evident in just about every corner store and fast food restaurant. The ethics concerning public safety and effects on the human body are clear. Companies are only concerned over their ability to raise a profit. Their aim to create profits from the overconsumption of high energy foods has been effective in making Americans unhealthy, while continuing to turn over profits. While the companies are certainly a large part of the problem, the consumers are also to blame. They have enabled this overproduction by continuing to consume the same products making them sick. Additionally, people seem to be ignoring their recommended caloric intakes and are choosing to eat more and more. Companies can only be blamed for producing products with limited nutritional value. They are ethically absolved of their responsibilities if they inform their consumers properly. Their goal is to make profits, not worry whether their consumers are eating the recommended serving size or not. The best way to take control of this issue would to be to consume less and choose healthier options as individuals. The more aware we become as individuals, the healthier we will become as a society.

Leading a health task force through malaria prevention program Essay

Leading a health task force through malaria prevention program - Essay Example The situation I have chosen is where a group of health professional is carrying out a malaria prevention program in the community. As the leader of the task force, I am required to exhibit leadership equation, power of vision, significance of ethics, ability to empower people, principles of leadership, human abilities and understanding, high level of effectiveness, ability to develop other people, and performance management. This paper will hence focus on the mentioned leadership components that I will exhibit in leading the task force through a malaria prevention program. Leadership equation During my reign as a leader of the task force, I will prefer a group leadership to an individual leadership. As opposed to individual leadership where one person leads the whole group, group leadership encourages the whole team to act as leaders. This approach will aid in increasing effectiveness, creativity and even reducing costs. This energizes the team and makes them feel an elevated level o f empowerment. Leading a team through a prevention program requires much time as it involves straining circumstances. It involves dealing with community at the grass root level where there is a low literacy level. It also requires ample time to empower community members to adopt the measures provided by the team members. The community will have to be taught and trained on how they can prevent malaria from making a better part of them. It will also involve distribution of treated mosquito bed nets. This will mean the community will be trained on how to use these bed nets. It will be the work of the team to ask the community to observe various causes of malaria in order to avoid infections. Above all, the community will be empowered in order to keep observing the measures of malaria prevention. After the program, there will be a monitoring and evaluation session to ensure the program is effective after which the team can pronounce success of the program. The whole of these activities requires much cooperation from the team members. Therefore as a team leader, I will have to exhibit distinct leadership traits, behavior, styles and qualities. The team is also expected to show effective characteristics of a well functioning team in order to provide the right condition of working together and providing leadership. As a leader I will provide awareness of unity to all members of the team. The members will also have the ability to develop interpersonal relationship where every member gets a chance to learn from each other and contribute to work. I will also use my leadership to enhance togetherness towards achieving our common goal. My team will exhibit characteristics of a well functioning team including: Members share a sense of purpose and reason for existence of the team and invest their time in obtaining the goals and mission of the team. Members share priorities with one another; they know what has to be done by whom and by when the goals are to be achieved. Memb ers are definite about their roles. Everyone knows what tasks to do and when to give team experts a chance to do specific task. Members understand the line of decision making and authority. Members deal with conflicts openly and consider them significant to personal growth and decision making. Members appreciate each other’s personal traits and feel their distinct personalities well utilized and appreciated. Members have set group norms that enable them work together and are observed as the group standards for

How do the situations in the book not for sale by David Batstone, Essay

How do the situations in the book not for sale by David Batstone, reflect stratification, inequality, race and ethnicity, gender - Essay Example (page 5) Not for Sale is the book which throws the light on the social problems such as race, slavery, ethnicity, human exploitation, sexual abuse, child labour etc. The focus is basically on the poor countries of the world. The book is written by David Batstone, the professor of ethics in the department of theology and religious studies at the University of San Francisco, executive editor of Sojourners. In the book â€Å"Not for Sale,† he has depicted the callous reality of stratification, inequality, race, ethnicity and gender which is prevalent all over the world in the modern period also. According to him in till today slavery exists in 150 countries and â€Å"twenty-seven million slaves exist in our world.† (page.10) Slaves are human beings but they are treated in an inhumane way. Slavery is the second most beneficial criminal business after drug trade. The following social issues have been discussed in â€Å"Not for Sale.† Slavery is supposed to be the most closed system of stratification. The slavery in olden days and modern days is different. Though the structure has been changed, the phenomenon has not yet been eradicated completely. According to Baston todays slaves include (a) men first taken as prisoners of war in ethnic conflicts; (b) girls and women captured in wartime or kidnapped from their neighbourhoods and used as prostitutes or sex slaves; (c) children sold by their parents to become child labourers; and (d) workers paying off debts who are abused and even tortured and too terrified to leave While telling the horrible condition of poor women the writer informs that the young women were brought from India. After their arrival to USA their passports were taken from them. They compelled to work for hours without no compensation or with less compensation. If they refused they were harassed. Batstone’s study tells that

Hedge Fund Industry Essay Example | Topics and Well Written Essays - 2000 words

Hedge Fund Industry - Essay Example This can be used for both short and long term investments. Unlike mutual funds, however, hedge funds typically take long and short positions in assets to lower portfolio risk arising from broad market movements. A hedge fund may take long positions in certain stocks, and short positions in other stocks, the portfolio beta of which is close to zero. A beta close to zero implies that the portfolio will remain relatively unchanged due to the broad market movement. Such a portfolio will primarily change if the stocks move more than the broad market. In the U.S., laws require that the majority of investors in the fund beaccredited. That is, theymust earn a minimum amount of moneyannually and have a net worth ofmore than$1 million, along with a significant amountof investment knowledge. (Hedge Fund. 2008). In both rising and falling equity and bond markets hedge fund strategies tend to have the ability to generate positive returns. Since it is a balanced portfolio it helps to reduce overall portfolio risk and volatility and, therefore, has the potential for increased returns. Hedge funds also have an advantage over other options of investment as it offers investors a wide variety of choices in Hedge fund strategies that can be tailor made to suit the investment objective of individual customers. The fact that hedge funds have higher returns and lower overall risk than traditional investment funds has been proved beyond doubt through academic research. Moreover, this platform provides an ideal long-term investment solution, eliminating the concept of correct time entry and exit from markets. Adding hedge funds to an investment portfolio provides diversification which is otherwise not available in traditional modes of investments. The aspiration of the prospective employee Mr.X. Mr.X is undergoing a graduate course in commerce. His father Mr Y had remained employed in the insurance business, and wanted his son to toe in the same line. Mr.X however, had different ambitions. He weighed the pros and cons of joining the hedge fund industry as well as the insurance sector. He sought the advice of different consultants in the field who gave him the necessary information. He found out that the hedge fund industry was more lucrative and he chose this as his career option. Initially he thought that an undergraduate course in commerce would give him the necessary inputs. When he completed more than half the course content, he realised that he will not able to pursue a career in hedge fund with the knowledge gained from this course alone. He came to know about a large variety of job oriented course relating to hedge fund. So, in the final semester, he pursued a part-time certificate course in hedge fund. Again, he realised that there was a gap between theory and practi ce. Thus, in order to receive some practical experience, he underwent an internship with a practitioner in hedge fund consultation. Human Capital Theory: Human capital refers to the stock of productive skills and technical knowledge embodied in the labour free of an organisation. Economists consider human capital as one of the

Characters from Alice Hoffman's Saint Helene Essay

Characters from Alice Hoffman's Saint Helene - Essay Example The main character of the novel is Saint Helene though of course. The characters are set in the era of candles and lights made out of paper bags, sand and candles. Helena’s mother takes the authority in the house of replacing every melting pot of white wax with fresh candles. However it is shown in the beginning that Helene’s indifferent to her surroundings. Helene went to a high school called Middleborough High till her junior year. She was known to be a quiet recluse girl who had been dejected by the people around. Her companionship was very little. She was barely known her school. Whatever little was she known, she was known as someone who would spend her entire afternoon in a cafeteria filling paper pages. That was all people knew about her. The whole school used to look down upon her. The girls around her used to thank their stars that they are not Helen. That is the kind aura with which Alice Hoffman has set the character of the book in the beginning of the novel. To many she is unrelatable. She is not your routine girl. She hardly cares about her exterior and how she appears to the outside world. She is known to be fat, ugly, sorrowful . she has no friends. People think she is lost in her own world and the girls in her school find relief in the fact that they are not HER. ... However, she is a strong person from within. She puts a tough fight against the insulting connotations sent her way by her peers and school people. (Hoffman) As the story progresses her character is shown to evolve. Slowly and gradually she is redeemed in her eyes and in the eyes of people around her. She gains confidence, holds her ground and starts becoming more viable and acceptable by the society that was around her. The evolution in the character was phenomenal. It’s the best character in the book and makes inroads into this world without having the most appealing features or the most charismatic habits. She is by far the best character that this story has to offer. Bibliography Hoffman, Alice. Saint Helene.

Dorothea dix crusader for the mentally ill Term Paper

Dorothea dix crusader for the mentally ill - Term Paper Example While there, at the age of only 14, she organized her own school and taught neighborhood children. At the age of 19, she moved back to her Grandmothers home in Boston and started a second formal school for older children she named "The Hope," which catered primarily to poor children of the area. As a creative and caring thinker, she wrote a book for children entitled Conversations on Common Things (Brown, 1998). The school was forced to close when Dorothy became seriously ill and during her convalescence over the next two years, she continued with her writing including Hymns for Children and American Moral Tales for Young Persons (Gollaher, 1995). In 1830, Dorothea was engaged by Reverend William Ellery Channing and his wife to be a tutor and governess for their children. She traveled with the family to the Virgin Islands and stayed for nearly a year. Upon returning to Boston, she opened another school in the same location as "The Hope" school. However, within a few years, she became seriously ill with tuberculosis and was forced to retire from teaching in order to rest and recover. She spent the next 18 months recovering from her illness in England with close friends of Reverend Channing, William and Elizabeth Rathbone III. As she recovered from her illness and began to feel well enough to travel, she took advantage of an opportunity to tour York Retreat, a well known insane asylum in England. It was here that she observed patients being treated with dignity and respect, and it is thought that she formed many of her beliefs associated with compassionate care and proper treatment for the mentally ill (Herstek, 2001). In 1837, both her mother and grandmother passed away. Her grandmother left a fairly substantial inheritance to her and her brothers, which was instrumental in supporting her life's work. In 1841, she was invited by a friend to teach inmates Sunday school at the East Cambridge institution. It was there that she observed inmates that were mentally ill and housed in the general population with criminal inmates without regard to age, sex, or their ability to cope in any social environment. She was appalled that men and women were housed together in squalor with little food, heat or sanitary options (Brown, 1998). It was at this point that she embraced the concept of the pressing need for society to provide assistance to the mentally disadvantaged, and embraced the role of crusader for the mentally ill. For the next two years, she visited nearly all the institutions in the State of Massachusetts and documented the treatment of inmates and their living conditions. One example of the horrib le conditions was when she found that it was a common belief by prison and institution management that mentally ill patents couldn't feel extreme hot or cold temperatures, so there was no need to make provisions to protect them from extreme temperatures. She found this incomprehensible, and began documenting finding and thoughts she compiled

Reviews on Financial Risk Management Essay Example for Free

Reviews on Financial Risk Management Essay The definition and types of financial risk III. Risk management and the theoretical foundation IV. The process of financial risk management V. The challenges faced by the modern financial risk management theories ?Abstract? Financial risks are exposures of uncertainties for those participants in financial market. Financial risks can be divided into four categories: market risk, credit risk, liquidity risk and operational risk. Risk management has become more and more crucial for a market participant to survive in the highly competitive market. As the development of the global financial market, there are many phenomena that cannot be explained by traditional financial risk management theories. These phenomena have accelerated the development of behavioral finance and economic physics. The financial management theories have already improved a lot over the past decades, but still facing some challenges. Therefore, this report will review some important issues in the financial risk management; introduce some theoretical foundation of financial risk management, and discuss the challenges faced by the modern financial risk management. I. Introduction Financial risk is one of the basic characteristics of financial system and financial activities. And financial risk management has become an important component of the economic and financial system since the occurrence of financial in human society. Over the past few decades, economic globalization spread across the world with the falling down of the Bretton Woods system. Under above background, the financial markets have become even more unstable due to some significant changes. Many events happened during the decades, including the â€Å"Black Monday† of the year 1987, the stock crisis in Japan in 1990, the European monetary crisis in 1992, the financial storm of Asia in 1997, the bankruptcy of Long-Term Capital Management in 1998, and the most recent global financial crisis triggered in the year 2008. All these changes brought enormous destruction of the smooth development of the world economy and the financial market. At the same time, they also helped people realized the necessity and urgency of the financial risk management. Why did the crisis happened and how to avoid the risk as much as possible? These questions have been endowed more significant meaning for the further development of the economy. Therefore, this report will review some important issues in the financial risk management; introduce some theoretical foundation of financial risk management, and discuss the challenges faced by the modern financial risk management. II. The Definition and Types of Financial Risk The word â€Å"risk† itself is neutral, which means we cannot define risk a good thing or bad. Risk is one of the internal features of human behavior, and it comes from the uncertainty of the future results. Therefore, briefly speaking, risk can be defined as the exposure to uncertainty. In the definition of risk, there are two extremely important factors: first is uncertainty. Uncertainty can be considered as the distribution of the possibility of one or more results. To study risk, we need to have a precise description about the possibility of the risk. However, from the point view of a risk manager, the possible result in the future and the characteristic of the possibility distribution are usually unknown, so subjective factors are frequently needed when making decisions. The second factor is the exposure to uncertainty. Different human activities were influenced at different level to the same uncertainty. For example, the future weather is uncertain to everyone, but the influence it has over agriculture can be far deeper than that over finance industry or other industry. Based on the above description about risk, we could have a clearer definition of financial risk. Financial risk is the exposure to uncertainty of the participants in the financial market activities. The participants mainly refer to financial institutions and non-financial institutions, usually not including ndividual investors. Financial risk arises through countless transactions of a financial nature, including sales and purchases, investments and loans, and various other business activities. It can arise as a result of legal transactions, new projects, mergers and acquisitions, debt financing, the energy component of costs, or through the activities of management, stockholders, competitors, foreign governments, or weather. (Karen A. Horcher). Financial risk can be divided into the following types according to the different sources of risk. A. Market risk. Market risk  is the  risk  that the value of a portfolio, either an investment portfolio or a trading portfolio. It will decrease due to the change in value of the market risk factors. The four standard market risk factors are stock prices, interest rates, foreign exchange rates, and commodity prices. The influence of these market factors have over the financial participants can be both direct and indirect, like through competitors, suppliers or customers. B. Credit risk. Credit risk  is an investors risk of loss arising from a borrower who does not make payments as promised. Such an event is called a  default. Almost all the financial transactions have credit risk. Recent years, with the development of the internet financial market, the problem of internet finance credit risk also became prominent. C. Liquidity risk. Liquidity risk  is the risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss. Liquidity risk arises from situations in which a party interested in trading an  asset  cannot do it because nobody in the  market  wants to trade that asset. Liquidity risk becomes particularly important to parties who are about to hold or currently hold an asset, since it affects their ability to trade. D. Operational risk. Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Nowadays, the study and management of operational risk is getting more attention. The organizations are trying to perfect their internal control to minimize the possibility of risk. At the same time, the mature theory of other subjects, such as operational research methods, are also introduced to the management of operational risk. Overall, financial risk management is a process to deal with the uncertainty resulting from financial markets. It involves assessing the financial risks facing an organization and developing management strategies consistent with internal priorities and policies. Addressing financial risks proactively may provide an organization with a competitive advantage. It also ensures that management, operational staff, stockholders, and the board of directors are in agreement on key issues. III. Risk Management and the Theoretical Foundation Financial market participant’s attitude towards risk can be basically divided into the following categories. A. Avoid risk. It is irrational for some companies to think that they can avoid the financial risks though their careful management because of the following reasons. First of all, risk is the internal feature of human activities. Even though it doesn’t have direct influence, it could generate indirect influence though the competitors, suppliers or customers. Moreover, sometimes it might be a better choice for the manager of the company to accept risk. For example, when the profit margin of the company is higher than the market profit margin, the manager can increase the value of the company by using financial leverage principle. Obviously, it will be harder to increase the value of a company if the manager is always using the risk avoidance strategy. B. Ignore risk. Some participants tend to ignore the existence of risks in their financial activities, thus they will not take any measures to manage the risk. According to a research of Loderer and Pichler, almost all the Swedish multinational companies ignored the exchange rate risk that they are facing. C. Diversify risk. Many companies and institutions choose to diversify risk by putting eggs into different baskets, which means reaching the purpose of lower risk by holding assets of different type and low correlation. And the cost is relatively low. However, as to small corporations or individuals, diversifying risk is somehow unrealistic. Meanwhile, modern asset portfolio theory also tells us that diversifying risk could only lower the unsystematic risk, but not systematic risk. D. Manage risk. Presently, most people have realized that financial risk cannot be eliminated, but it could get managed though the financial theory and tools. For instance, participants can break down the risk they are exposed to by using financial engineering methods. After keeping some necessary risk, diversify the rest risk to others by using derivatives. But why do we need financial risk management? In other words, what is the theoretical foundation of the existence of financial risk management? The early financial theory argues that financial risk management is not necessary. The Nobel Prize winner Miller ;amp; Modigliani pointed out that in a perfect market, financial measures like hedging cannot influence the firm’s value. Here the perfect market refers to a market without tax or bankruptcy cost, and the market participants own the complete information. Therefore, the managers do not need to worry about financial risk management. The similar theory also says that even though there will be slight moves in the short run, in the long run, the economy will move relatively stable. So the risk management that is used to prevent the loss in short term is just a waste of time and resource. Namely, there is no financial risk in the long run, so the financial risk management in the short run will just offset the firm’s profits, and therefore reduce the firm’s value. However, in reality, financial risk management has already roused more and more attention. The need for risk management theory and measures soar to unprecedented heights for both the regulator and participants of the financial market. Those who think risk management is necessary argue that the need for risk management is mainly based on the imperfection of the market and the risk aversion manager. Since the real economy and the financial market are not perfect, the manager can increase a firm’s value by managing risk. The imperfection of the financial market is shown in the following aspects. First, there are various types of tax existing in the real market. And these taxes will influence the earning flow of the firm, and also the firm’s value. So the Modigliani ;amp; Miller theory does not work for the real economy. Secondly, there is transaction cost in the real market. And the smaller the transaction is, the higher the cost. Last but not least, the financial market participants cannot obtain the complete information. Therefore, firms can benefit from risk management. First, the firm can get stable cash flow, and thus avoid the external financing cost caused by the cash flow shortage, decrease the fluctuation range of the stock and keep a good credit record of the company. Secondly, a stable cash flow can guarantee that a company can invest successfully when the opportunity occurs. And it gets some competitive advantage compared to those who don’t have stable cash flow. Thirdly, since a firm possesses more resource and knowledge than an individual, which means it could have more complete information and manage financial risks more efficiently. If the manager of a firm is risk aversion, he can improve the manager’s utility through financial risk management. Many researches show that the financial risk management activities have close relation to the manager’s aversion to risk. For example, Tufano studied the risk management strategy of American gold industry, and found that the risk management of firms in that industry has close relation to the contract that the managers signed about reward and punishment contracts. The managers and employees are full of enthusiasm about risk management is because that they put great amount of invisible capital in the firm. The invisible capital includes human capital and specific skills. So the financial risk management of the firms became some natural reaction to protect their devoted assets. In conclusion, although controversy is still going on about the financial risk management, there is no doubt that the theory and tools of financial risk management is adopted and used by market participants, and continue to be enriched and innovated. IV. The Process of Financial Risk Management The process of financial risk management comprises strategies that enable an organization to manage the risks associated with financial markets. Risk management is a dynamic process that should evolve with an organization and its business. It involves and impacts many parts of an organization including treasury, sales, marketing, tax, commodity, and corporate finance. Company’s financial risk management can be divided into three major steps, namely identification or confirmation risk, measure risk and manage risk. Let’s illustrate it using the market risk as an example. First, confirm the market risk factors that have a significant influence to the company, and then measure the risk factors. At present, the frequently used measure of market risk approach can be divided into the relative measure and absolute measure. A. The relative measure method It mainly measures the sensitivity relationship between the market factors fluctuations and financial asset price changes, such as the duration and convexity. B. The absolute measure methods It includes variance or standard deviation and the absolute deviation indicator, mini max and value at risk (VaR). VaR originated in the 1980s’, which is defined the maximum loss that may occur within a certain confidence level. In mathematics, VaR is expressed as an investment vehicle or a combination of profit and loss distribution of ? -quantile, which stated as follows: Pr ( ? p ;lt;= VaR ) = ? , where, ? p said that the investment loss in the holding period within the confidence level (1 –? ). For example, if the VaR of a company is 100 million U. S. ollars in 95% confidence level of 10 days, which means in the next 10 days, the risk of loss that occurred more than 1 million U. S. dollars may of only 5%. Through this quantitative measure, company can clear its risks and thus have the ability to carry out the next step targeted quantitative risk management activities. (Guanghui Tian) The last step is management risk. Once the company identified the major risks and have a quantitative grasp of these risks through risk-measurement methods, those companies can use various tools to manage the risk quantitatively. There are different types of risk for different companies, even the same company at different stages of development. So it requires specific conditions for the optimization of different risk management strategies. In general, when the company considers its risk exposure more than it could bear, the following two methods can be used to manage the risk. The first way is changing the company’s operating mode, to make the risk back to a sustainable level. This method is also known as â€Å"Operation Hedge†. Companies can adjust the supply channels of raw materials, set up production plants in the sales directly or adjust the volume of inflow and outflow of foreign exchange and other methods to achieve above purpose. The second way is adjust the company’s risk exposure through financial markets. Companies can take advantage of the financial markets. Companies can take advantage of the financial markets wide range of products and tools to hedge its risk, which means to offset the risk that the company may face through holding a contrary position. Now various financial derivative instruments provide a sufficient and diverse selection of products. Derivative products are financial instruments whose value is attached to some other underlying assets. These basic subject matters may be interest rates, exchange rates, bonds, stocks, stock index and commodity prices, but also can be a credit, the weather and even a snowfall in some ski showplace. Common derivatives include forward contracts, swaps, futures and options and so on. V. The Challenges Faced by the Modern Financial Risk Management Theory Over the recent years, as the focus of risk management hifts from a control function to one of global financial optimization, the concern shifts from modeling the behavior of engineered contracts in selected markets to modeling the evolution of the entire economy. This change of focus calls for a vastly improved ability to model the time evolution of economic quantities. (Sergio Focardi). While those who do risk management are interested in predicting if assets will go up or down, the over-riding interest is in the relationship in movement to different assets. Though linear methods such as variance-covariance help to understand the co-movements of markets, a different set of tools is necessary to better manage risk. (Jose Scheinkman). Paradigms such as learning, nonlinear dynamics and statistical mechanics will affect how risk – from market and credit risk to operational risk – is managed. While the first attempts to use some of these tools were focused on predicting market movements, it is now clear that these methodologies might positively influence many other aspects of economics. For instance, they could be useful in understanding phenomena such as price formation, the emergence of bankruptcy chains, or patterns of boom-and-bust cycles. Lars Hansen, Homer J. Livingston professor of economics at the University of Chicago, remarks that these new paradigms will bring to asset pricing and risk management at enhanced understanding once the implicit underlying fundamentals are better understood. He says â€Å"What needed is a formal specification of the market structure, the microeconomic uncertainty, and the investor preferences that is consistent with the posited nonlinear models. Commenting on the need to bring together the pricing of financial assets and the real economy, he notes that an understanding of what’s behind pricing leads to a better understanding of how assets behave. â€Å"For risk management decisions that entail long-run commitments,† he observes, â€Å"it is particularly important to understand, beyond a purely statistical model, what is governing the underlying movements in security prices. † Blake LeBaron, professor of economics at the University of Wisconsin-Medison, observes that there is now more interest in macro moves than in individual markets. But traditional macroeconomics typically provides only point forecasts of macro aggregates. In the risk management context, a simple point forecast is not sufficient; a complete validated probabilistic framework is needed to perform operations such as hedging or optimization. One is after an entire statistical decision-making process. The big issue is the distinction between forecasts and decisions. (Blake LeBaron) Arriving at an entire statistical decision-making process implies reaching a better scientific explanation of economic reality. New theories are attempting to do so through models that reflect empirical data more accurate than traditional models. These models will improve our ability to forecast economic and financial phenomena. The endeavor is not without its challenges. Our ability to model the evolution of the economy is limited. Prof. Scheinkman notes that unlike in a physical system where better data and more computing power can lead to better predictions, in social systems when a new level of understanding is gained, agents start to use new methods. Prof. Scheinkman says â€Å"Less ambitious goals have to be set. Gaining an understanding of the broad features of how the structure of an economic system evolves or of relationships between parts of the system might be all that can be achieved. Prof. Scheinkman remarks that we might have to concentrate on finding those patterns of economic behavior that are not destroyed, at least not in the short-run, by the agent learning process. VI. Conclusion The theory foundation of modern financial risk management is the Efficient Markets Hypothesis, which notes that financial market is a linear balanced system. In this system, investors are rational, and they make their investment decision with rational expectations. This hypothesis shows that the changing of the future price of financial assets has no relation with the history information, and the return on assets should obey normal distribution. However, the study of economic physics shows that financial market is a very complicated nonlinear system. At the same time, behavioral finance tells us that investors are not all rational when making decisions. They usually cannot completely understand the situation they are facing unlike hypothesized. And most times they will have cognitive bias, when they use experience or intuition as the basis of making decisions. It will lead to irrational phenomena like overreaction and under reaction when reflected on investment behaviors. Therefore, it will be meaningful to study how to improve the existing financial risk management tools, especially how to introduce the nonlinear science and behavior study into the measurement of financial risk.