Sunday, December 29, 2019
Globalisation of Financial Markets and the Global Crisis The financial markets are increasingly and highly interconnected, which means that the regulation of the financial services is becoming globalised as well, since most of the bigger firms operate all over the globe, the standardization of the regulation is a very common practice nowadays, making very difficult especially for developing countries keep up with the regulation. The financial crisis of 2008 was one of the most devastating and longest crises the contemporary world has seen, after the crisis a set of reforms, institutions and regulation were created, to avoid this happening again. Financial markets are in need of stronger regulation and higher penalties for infringement, nevertheless the main challenge for most countries is the implementation of the international regulations. The crisis is the result of different factors. This essay will analyse firstly, some of the factors that contribute to globalisation of the markets. Secondly, how these factors led to the financial crisis of 2008 and how the crisis developed. Thirdly, it will analyse the changes made regulation wise in order to try to mitigate the crisis and avoid another crisis of this magnitude. The definition that the QFINANCE Financial Dictionary (2009), gives of markets is Ã¢â¬Å"market for buying and selling financial instruments market in which financial instruments are traded. The financial markets are stock exchanges, commodity exchanges, bondShow MoreRelatedThe World s Economy Was Devastated1732 Words Ã |Ã 7 Pagesrise to globalization. Globalization is process of integration of the worldÃ¢â¬â¢s views, products, ideas and culture. As more and more countries began to interact and the barriers of global economy were broken, the effects of one countryÃ¢â¬â¢s economic problems could affect their trade partners and other markets. This would be most noted in the next financial crisis for which hit the United States hard in 2008. With the United States alone, the crisis saw the stock market drop, the house market sufferRead MoreGlobalization And The Globalization Project1266 Words Ã |Ã 6 Pagesthis paper you will understand the shift of the development to the globalization project. In doing so you will learn what Ã¢â¬Å"globalizationÃ¢â¬ means as a project and as a process and why it is described as being in crisis. Next you will learn about the financial and farming dimensions of the problems confronting the globalization project. With that you will thirdly learn about how global warming presents multiple challenges to globalization. I will also discuss the emergent Ã¢â¬Å"sustainability projectÃ¢â¬ , withRead MoreIfra Iqbal. April 18, 2016. Globalization 441. Professor1277 Words Ã |Ã 6 Pages2016 Globalization 441 Professor Garclon Final Exam In this paper you will understand the shift of the development to the globalization project. In doing so you will learn what Ã¢â¬Å"globalizationÃ¢â¬ means as a project and as a process and why it is described as being in crisis. Next you will learn about the financial and farming dimensions of the problems confronting the globalization project. With that you will thirdly learn about how global warming presents multiple challenges to globalization. I willRead MoreFinancial Globalization And The Financial Crisis1274 Words Ã |Ã 6 Pages The term financial globalization can be defined as the integration of various financial markets of countries across the world. In other terms, it means the mobility of finance across various countries without encountering any barrier. Therefore, financial liberation is not sufficient enough parameter for globalization. Financial globalization advocates for development of a single currency worldwide currency that can be regulated and managed by a s ingle global monetary institution. The first eraRead MoreThe Globalization Of The World Economies Is A Direct Result Of Globalization1309 Words Ã |Ã 6 PagesOver the past few decades, particularly during the 2000s, financial markets around the globe have become increasingly interconnected (Shmukler, 2004). This mounting integration of the world economies is a direct result of globalization. Particularly, the globalization of financial markets is characterized by substantial cross-national flows of capital and the development of a large foreign exchange market. Every day around the world, banks and stockbrokers transfer vast amounts of money across countryRead MoreAnalysis of Ã¢â¬Å"the Global Financial Crisis: Causes, Effects, Policies and ProspectsÃ¢â¬ Dominick Salvatore, Journal of Politics Society, Columbia University1110 Words Ã |Ã 5 Pages Analysis of Ã¢â¬Å"The Global Financial Crisis: Causes, Effects, Policies and ProspectsÃ¢â¬ Dominick Salvatore, Journal of Politics Society, Columbia University June 2010 Marija Nikolic December 2012 Global financial crises has brought into focus debate about decisions made by the countries which are leading economic forces, making them to reconsider past living standards and habits. With the aim to examine the causes, effects, policies and prospects for the financial crisis D.Salvatore publishedRead MoreDomestic And Foreign Economic Policy1646 Words Ã |Ã 7 Pageseffects not only their domestic economy but the global economy. What is the best method for states to approach the global market; should states accept the capitalist free market or utilize different models that are out there? Purpose Statement: The way that states approach the global market is very different from each other. Most of the biggest and successful economies in the world utilize similar economic models when addressing the global market. Their domestic and foreign economic policy is typicallyRead MorePositive and Negative Effect of Globalization744 Words Ã |Ã 3 PagesTopic: Discuss the positive and negative effects of globalization on the world today. The term globalization is the process of transformation of local phenomena into global ones. It is when different countries start to connect together as a whole, when people around the world are more linked to each other than ever before, when information and money flow more speedily and when goods and services produced in one part of the world are increasingly obtainable in all parts of the world. And it hasRead MoreFinancial Deregulation and Capital Control1283 Words Ã |Ã 5 PagesÃ¯ » ¿Financial deregulation and capital control The financial markets for a long time were regulated following the aftershocks of the global recession which affected several economies across the globe. It was until the 1980s that the federal government passed the Deregulation and Monetary Act which was aimed at providing deregulation for the financial institutions. This gave the banks the flexibility to compete and extend their services at a much easier and faster way in a very competitive market andRead MoreEffects Of New Global Era On The World1283 Words Ã |Ã 6 PagesEffects of New Global Era In the past 100 years, the world has shifted enormously. Once, a world that only communicated when one nation was trying to take over another, is now connected more than ever. This transformation began with the Industrial Revolution in a period from around 1760 to 1840. Thinking back to that time, we can easily think of noticeable differences between how the world was and how it is today. The United States was a small, developing country, still trying to overcome the effects
Friday, December 20, 2019
The travel nursing industry has been on the upswing for 30 years. Through this three-decade old history, it s had more ups than downs when it comes to supply and demand. Hospitals and clinics across the country are guaranteed to experience staff shortages from time to time. In addition, many hospitals are being forced to adapt hiring policies to secure higher nurse to patient ratios. Along with the creation of vendor management systems, travel nursing has been a healthy business far and wide. Through the late 80 s, the travel nursing machine experienced its peak with close to 10,000 nurses available. Today, there are 20,000+ registered travel nurses that form part of a $2 billion dollar industry, along with countless staff recruitment agencies sharing in the pie. As of April 2006, there are around 5000 travel nurse openings available; a significant upward climb from the 2500 spots available three years ago. This speaks volumes over the potential of the healthcare travel industry in the future. Travel nursing allows experienced and honed nurses to practice their craft caring for patients while exploring different parts of the country while collecting a salary up to 20% higher than a standard nurse. As aforementioned, the industry has had more ups than downs. Currently, the travel nursing industry is experiencing an up-swing, with experts predicting a high rate of growth for nursing positions in the next decade. According to the latest statistics, there will be a 29%Show MoreRelatedBenefits Of A Nursing Career1267 Words Ã |Ã 6 Pagesare many advantages to having a nursing career. Nursing offers the wonderful advantage of job security, because there is a high demand for nurses in the healthcare field. Another advantage of nursing is the excellent wages and benefits. Nurses can expect to receive a great salary for the amount of work that is performed. Also, another great advantage in nursing is that the job opportunities are endless. There is plenty of flexibi lity and many specialties in the nursing field, a nurse will be able toRead MoreThe Importance Of Nurses And Medical Field984 Words Ã |Ã 4 Pagespractices. The American Association of Colleges of Nursing (AACN), the national voice for baccalaureate and graduate nursing programs, Ã¢â¬Å"believes that education has a significant impact on the knowledge and competencies of the nurse clinician, as it does for all health care providersÃ¢â¬ . What they want is for all nurses to have the proper training for every situation that may happen. By making their training more through, and the increase in nursing facilities the number of highly trained nurses haveRead MoreNursing : A Nurse Is Not Comfort, Compassion, And Caring Without Even A Prescription?1748 Words Ã |Ã 7 PagesResearch paper: Nursing Ã¢â¬Å"Nurses dispense comfort, compassion, and caring without even a prescriptionÃ¢â¬ (Val Saintsbury 2010). This quote is only one, of among thousands of quotes that represent nursing. There are thousands of definition of what a nurse is but there is not one simple definition that we can use to determine the meaning of a nurse. Nursing is one of the most competitive fields in college. With that being said, nursing has a variety of positions that requires a heart, and a head ofRead MoreProblems Faced By Hotel Industry Essay1429 Words Ã |Ã 6 PagesContents Introduction 2 Issues faced by hotel industry 3 Causes for the issues faced by the hotel industry 4 Solution 6 Conclusion 8 Ã¢â¬Æ' Introduction The hospitality industry is a wide group of subject in service industry which indulge event planning lodging etc. Unit of hospitality is such hotel holds the various group of faculties like as kitchen staff, management, human resources, housekeepers, etc. Hotel business supply lodging paid in short term basis. Facilities that offer to customers areRead MoreJulissa Martinez . Mrs.Campbell . English Ii3Rd Period1623 Words Ã |Ã 7 PagesMaster s degree in nursing or you can also have your BSM but to get it faster it s better to get your Master s BachelorÃ¢â¬â¢s. I see myself in 20 years retiring from the Army but continuing to be a nurse but this time I want to be where the soldiers go for check ups after they have had surgeries or any other type of extreme things . The experience I want to have attending Bowie State University is to join their nursing courses and get my my bachelorÃ¢â¬â¢s and masterÃ¢â¬â¢s in nursing also joining their ROTCRead MoreEssay on Influences of Health Care Research919 Words Ã |Ã 4 PagesInfluences of Health Care Research HCS/465 February 22nd, 2016 Dawn Bricker Influences of Health Care Research In this paper we will discuss an innovation that has been developed in the last 20 years that has influenced the health care industry. That innovation is telemedicine. Telemedicine What is telemedicine? According to the American Telemedicine Association, Ã¢â¬Å"Formally defined, telemedicine is the use of medical information exchanged from one site to another via electronicRead MoreThe Civil War And The First Modern War1632 Words Ã |Ã 7 Pagesand make a decision to improve the industry. The most common problem faced by all soldiers was the loading of guns. Soldiers typically carried guns that held one bullet at a time. A soldier who was trying to aim and shoot the target would have to stand much closer, as the weaponÃ¢â¬â¢s range was only about 80 yards. Hence, battles were fought relatively at a closer range. Rifles, were used for long range shooting, and were very accurate as the bullet could travel up to 1,000 yards. However, it was impossibleRead MoreImpact Of 2012 Olympics On Hospitality Essay1721 Words Ã |Ã 7 Pages2012 Olympics and its impact on the hospitality industry of London. 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(Powell-Cope, G. et al.)Ã¢â¬ Technology has a lot to offer and in spite of all its b enefits, consequentlyRead MoreThe American Travel Health Nurses Association3195 Words Ã |Ã 13 PagesChapter One: Introduction Overview Need The American Travel Health Nurses Association (ATHNA) is a professional organization that provides support and resources for North American nurses working within the travel health field. As stated on the organization?s webpage, ?the mission of the American Travel Health Nurses Association is to promote excellence in travel health nursing practice, education, and research? (American Travel Health Nurses Association, n.d.). One of ATHNA?s main objectives
Thursday, December 12, 2019
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 Ã¢â¬Å"Black MondayÃ¢â¬ 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 Ã¢â¬Å"riskÃ¢â¬ 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 riskÃ is theÃ riskÃ 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 riskÃ is an investors risk of loss arising from a borrower who does not make payments as promised. Such an event is called aÃ 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 riskÃ 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 anÃ assetÃ cannot do it because nobody in theÃ marketÃ 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 participantÃ¢â¬â¢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 doesnÃ¢â¬â¢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 firmÃ¢â¬â¢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 firmÃ¢â¬â¢s profits, and therefore reduce the firmÃ¢â¬â¢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 firmÃ¢â¬â¢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 firmÃ¢â¬â¢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 donÃ¢â¬â¢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 managerÃ¢â¬â¢s utility through financial risk management. Many researches show that the financial risk management activities have close relation to the managerÃ¢â¬â¢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. CompanyÃ¢â¬â¢s financial risk management can be divided into three major steps, namely identification or confirmation risk, measure risk and manage risk. LetÃ¢â¬â¢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 1980sÃ¢â¬â¢, 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 Ã¢â¬â? ). 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 companyÃ¢â¬â¢s operating mode, to make the risk back to a sustainable level. This method is also known as Ã¢â¬Å"Operation HedgeÃ¢â¬ . 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 companyÃ¢â¬â¢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 Ã¢â¬â from market and credit risk to operational risk Ã¢â¬â 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 Ã¢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 whatÃ¢â¬â¢s behind pricing leads to a better understanding of how assets behave. Ã¢â¬Å"For risk management decisions that entail long-run commitments,Ã¢â¬ he observes, Ã¢â¬Å"it is particularly important to understand, beyond a purely statistical model, what is governing the underlying movements in security prices. Ã¢â¬ 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 Ã¢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.