This chapter discusses the importance of risk management in financial institutions, emphasizing the need for a robust system to control and mitigate risks. It highlights the key components of risk management, including market risk, liquidity risk, credit risk, and operational risk. The chapter also explains directional and non-directional risks, and the differences between credit risk and legal risk. It provides examples to illustrate how different types of risks can impact financial institutions and the importance of accurate risk measurement and management. Additionally, the chapter addresses the limitations of traditional risk measures like notional, duration, and leverage, and introduces Value-at-Risk (VAR) as a more comprehensive measure. It emphasizes the importance of stress testing and the need for regulatory capital standards that consider VAR measures. The chapter concludes by discussing the challenges and pitfalls of risk management, such as model risk and the potential for VAR systems to encourage excessive risk-taking.This chapter discusses the importance of risk management in financial institutions, emphasizing the need for a robust system to control and mitigate risks. It highlights the key components of risk management, including market risk, liquidity risk, credit risk, and operational risk. The chapter also explains directional and non-directional risks, and the differences between credit risk and legal risk. It provides examples to illustrate how different types of risks can impact financial institutions and the importance of accurate risk measurement and management. Additionally, the chapter addresses the limitations of traditional risk measures like notional, duration, and leverage, and introduces Value-at-Risk (VAR) as a more comprehensive measure. It emphasizes the importance of stress testing and the need for regulatory capital standards that consider VAR measures. The chapter concludes by discussing the challenges and pitfalls of risk management, such as model risk and the potential for VAR systems to encourage excessive risk-taking.