PRMIA Exam 8020 Topic 1 Question 1 Discussion

Overview of the National Australia Bank (NAB) FX Options Case Study

Traders at National Australia Bank (NAB) engaged in unauthorized foreign exchange (FX) options trading.

They smoothed profits and concealed losses using fictitious transactions and manipulated reporting.

This led to a major financial scandal and loss of investor confidence.

Key Findings of the Investigation

Traders artificially smoothed profits to avoid drawing attention to large fluctuations.

Losses were concealed from internal risk controls by manipulating trade records.

The bank's risk management and governance controls failed to 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 also smoothed profits to manipulate earnings trends.

D . Currency traders were able to complete a Management Buy Out (MBO).

Incorrect -- This event was not related to a Management Buyout (MBO); it was a trading scandal.

PRMIA Reference for Verification

PRMIA Fraud and Risk Management Case Studies

Basel Principles on Market Risk and Internal Control Failures