Overview of the National Australia Bank (NAB) FX Options Case Study
Traders atNational Australia Bank (NAB)engaged inunauthorized foreign exchange (FX) options trading.
Theysmoothed profits and concealed lossesusingfictitious transactions and manipulated reporting.
This led toa major financial scandal and loss of investor confidence.
Key Findings of the Investigation
Tradersartificially smoothed profitsto avoid drawing attention to large fluctuations.
Losses wereconcealed from internal risk controlsby manipulating trade records.
The bank’srisk management and governance controls failedto detect and prevent these activities.
Why Other Answers Are Incorrect
Option
Explanation
A. Currency traders were allowed access to the risk system by the CEO.
Incorrect– No evidence suggests CEO involvement in granting system access.
B. Currency traders concealed losses using back-office knowledge.
Incorrect– While they concealed losses, they alsosmoothed profitsto manipulate earnings trends.
D. Currency traders were able to complete a Management Buy Out (MBO).
Incorrect– This event wasnot related to a Management Buyout (MBO); it was atrading scandal.
PRMIA Fraud and Risk Management Case Studies
Basel Principles on Market Risk and Internal Control Failures
PRMIA References for Verification
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