The AMA Handbook of Financial Risk Management

Introduction

An ancient story from India tells of six blind men who were asked to describe an elephant by feeling different parts of the elephant’s body. One man touched a leg and described a pillar. The man who touched a tusk had a different description, and so did the men who felt the tail, trunk, belly, and ear. The story is often used to demonstrate the possibility of different forms of truth depending upon one’s perspective or lack thereof.

We should remember this story as we introduce financial risk management to the reader. As we moved into the twenty-first century, we discovered that there are two distinctly different viewpoints on financial risk. These evolved into two definitions of financial risk management:

• Definition 1. Financial ...