With increased uncertainty in the economic environment and greater volatility of interest rates and asset prices, risk management has become an increasingly important, and increasingly difficult, function of financial institution managers. The readings for Part 7 discuss types of risk financial institutions face and describe two tools, option and interest rate swaps, which are available for managing risk.

1. Chapter 24:
   "What is Operational Risk?" Jose A. Lopez, Federal Reserve Bank of San Francisco FRBSF Economic Letter, No. 2002-02, January 25, 2002, pp. 1-2.
2. Chapters 23 and 24:
   "How Financial Firms Manage Risk." Jose A. Lopez, Federal Reserve Bank of San Francisco FRBSF Economic Letter, No. 2003-03, February 14, 2003, pp. 1-3.
3. Chapter 25:
   "Debunking Derivatives Delirium." Jeffery W. Gunther and Thomas F. Siems, Federal Reserve Bank of Dallas Southwest Economy, March/April 2003, pp. 1, 5-9.
4. Chapter 25:
   "Options and the Future: What Do Markets Think?" Ben Craig, Federal Reserve Bank of Cleveland Economic Commentary, October 1, 2002, pp. 1-4.