Last week, you were introduced to ISO 31000, the international standard for risk management. The benefits of using this standard are not really obvious until you've applied it. This week, we'll do just that. We're going to focus on a specific type of risk; foreign exchange risk. We'll examine a hypothetical case. Larry's Luxury Food and Wine. Larry imports luxury food and wine from Europe, Basel, and Australia. Those of you who have based in other countries will be aware of similar companies operating in your local context, so it will be easy for you to apply the same principles. Foreign exchange risk is a risk that we can fairly, easily quantify. The Australian dollar floated in 1983, so we have more than 35 years of relevant data to play with. I'm a big fan of quantifying risk wherever possible, because of the behavioral biases and blind spots that we discussed last week. If you can analyze your risk quantitatively and then visualize the risk, your understanding will be much deeper. You'll be more likely to make a sensible decision. That's not to say that we follow quantitative models blindly. Every model needs to be appropriately questioned. I always say, that quantitative analysis is the starting point for a good discussion about risk, but it's definitely not the end point. This week we'll be systematically working through the risk management process for foreign exchange risk. We'll do some quantitative analysis and then use that analysis to visualize the risk. We'll then evaluate the impact of foreign exchange risk on Larry's Luxury Food and Wine, to see whether the firm is likely to survive. The analysis will be the foundation for any treatment decisions considered down the track. So it's really essential to get this right. Even non-executive directors need enough understanding of the risk analysis, to interpret reports, so they can challenge assumptions and provide oversight of the risk management process.