The future cannot be predicted. It is uncertain, and no one has ever been successful in consistently forecasting the stock market, interest rates, exchange rates, or commodity prices—or credit, operational, and systemic events with major financial implications. However, the financial risk that arises from uncertainty can be managed. Indeed, much of what distinguishes modern economies from those of the past is the new ability to identify risk, to measure it, to appreciate its consequences, and then to take action accordingly, such as transferring or mitigating the risk. One of the most important aspects of modern risk management is the ability, in many instances, to price risks and ensure that risks undertaken ...

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