nayizhenfeng

11、In the context of operational risk, management oversight responsibility for the line managers is primarily:

A) to develop clear lines of authority, responsibility and acceptable limits on operational risk.
 
B) reporting on operational risk management procedures.
 
C) oversight of their specific business units.
 
D) establishing the person in charge of risk management.
 

nayizhenfeng

 The correct answer is C

The line managers should have primary oversight responsibility for their specific business units.

nayizhenfeng

12、All of the following are reasons that Nick Leeson engaged in aggressive speculative trading in the Barings Bank collapse EXCEPT:

A) he was attempting to recover previous trading losses. 
 
B) Barings’ lack of risk management oversight. 
 
C) his authority over settlement operations allowed him to hide trading losses. 
 
D) Barings’ risk management models were flawed. 

nayizhenfeng

 The correct answer is D

The collapse of Barings Bank was not an instance of flawed hedging models, but one of poor operational control. Leeson had previously incurred huge trading losses that, if revealed, would have cost him his job. In an effort to recover those losses, he abandoned his hedging strategies and speculated to recoup these losses. His influence and authority in back office operations allowed him to hide his speculative losses and report phantom profits. Leeson ignored and exceeded risk control limits, and senior management’s lack of understanding about Leeson’s role and oversight allowed his schemes to go undetected.

nayizhenfeng

13、Information systems at Barings Bank were deficient for all of the following reasons EXCEPT:

A) technological limitations that hindered accurate financial reporting.
 
B) management’s failure to audit reporting quality.
 
C) incomplete account information on gains and losses. 
 
D) management’s inability to detect the inconsistency of Leeson’s trading strategy and profits.

nayizhenfeng

 The correct answer is A

The Barings collapse did not result from technological limitations. Management is responsible for auditing and ensuring the quality of the information it receives. Barings management failed to do so and received information without questioning it. Reports contained incomplete account information on gains and losses. Management also failed to detect a signal that something might be wrong in that the size of Leeson’s reported profits were inconsistent with and out of proportion to the trading strategy he was supposedly using. Technological limitations were not an issue in the Barings case.

nayizhenfeng

14、Which of the following choices is an example of operational risk in the collapse of Barings?

A) The Nikkei collapsed due to an earthquake.
 
B) Failure to supervise the actions of its trader.
 
C) Much of a company’s assets were in illiquid derivative products.
 
D) The default of Japanese industrial firms. 
 

nayizhenfeng

 The correct answer is B

The failure to supervise the actions of its trader is an example of operational risk.

sarui

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