5902 at2.docx - Abstract In business activities the board of directors control the develop direction of the organizations by making various decisions

5902 at2.docx - Abstract In business activities the board...

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Abstract In business activities, the board of directors control the develop direction of the organizations by making various decisions, aim to keep the rapid progress of the firms and gain more profit. However, high returns means high risks at the same time. Some decisions help the firm to gain more profit but face more risks, which may cause added expenditure and further lead to serious results. To ensure the safety of the firms’ development, risk context is always a determinant of business decision making. Risk contexts are always complex and different decisions may be influenced by different risk contexts in different degree. So the board of directors should take into account the seriousness of the possible outcomes and the determinism of the risk before making a decision, and weigh the loss and gain completely to make the best choice. As a tool to manage the capital and investment, financial engineering becomes more important to be tailored to the shift of the complex risk contexts. Financial engineering use some mathematical methods to analyze the business data, apply some models to quantify the impacts of different risk contexts. Sometimes the shift of the contexts are chaotic and difficult to estimate, while the quantitation of the risk contexts makes it more intuitive to be compared and considered. Financial engineering can provide the rational predictions and helps the boards to make the reasonable decisions. Nowadays, the economic globalization and the emergence of new economic styles lead the business environment to undergo significant revolution. As a result, new kinds of risk contexts appear and their shift becomes more frequently. Under this situation, financial engineering is absolutely necessary for most firms. Even though many corporations attach great importance to risk management, improperly dealing with the shift in risk context may happen sometimes and lead to crisis. For external context, policy shifts always cause great changes within an industry. Firms ignore the changes of new policy may falsely change the strategies on time and lose the competitiveness. Apart from the change of policy, the shift of technology and business rival without effective response may lead to similar result. The incorrect judgment of external context makes the enterprise develop on the wrong road and lead to greater crisis with time goes by. As for the internal context, backward governance system may not fit the present scale and situation of the corporations and hinder the development of the enterprises. When the human structure changes, the poor human resource system may lead to the appearance of inequality and reduce the work efficacy. As mentioned above, the economic globalization makes the context more complex and shift more frequently. There will be challenges for firms to adapt quickly and make corresponding adjustment. The entry of foreign companies may break the existing
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