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By now, you should have nearly enough knowledge of risk management to become the chief
executive officer (CEO) of a major corporation. Of course, skill at risk management is not
the only qualification for such a lofty position. Some traditionalists may even claim that it is
not nearly as important as other qualities such as leadership, business experience, strategic
vision, charisma, and a strong network of well-placed people who owe you something.
Nonetheless, in Chapter 7 we will appoint you to a CEO position and see how you do as
a strategic risk manager.
CEOs have two broad responsibilities: business decisions, such as how to make and sell
their firm's product, and financial decisions, such as how to raise and invest funds for their
firm. Before we plunge you into the raging battle of capitalism, we will view your business
and financial responsibilities through the lens of risk management.
Business risks potentially harm a company's ability to produce and sell its products at a
profit. A business risk of an auto company might be an increase in the price of the steel that
it needs to build its cars. A business risk of a pharmaceutical company might be the loss of a
patent on one of its most profitable drugs. Clearly, a company's business risks are highly
dependent on which particular businesses the company is in. Uncertainty about wheat prices
is important to General Mills but not to General Motors.
Consider the case of an airline. Major business risks for an airline are uncertainties about
jet fuel prices, labor costs, the cost and availability of aircraft, the cost and availability of
landing slots, the volume