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PRMIA Exam 8020 Topic 1 Question 1 Discussion

Actual exam question for PRMIA's 8020 exam
Question #: 1
Topic #: 1
[All 8020 Questions]

For the National Australia Bank - FX Options case study, which was the major cause of the loss event?

Show Suggested Answer Hide Answer
Suggested Answer: C

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


by Sabina at Feb 09, 2025, 01:58 AM

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Lauryn
2 days ago
Definitely, option C seems spot on!
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Vernice
8 days ago
I heard it was mainly about traders concealing losses.
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Karma
13 days ago
I don’t remember much about the MBO, but it seems unlikely that would be the main cause. I thought it was more about the traders' actions in the risk management process.
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Dorothy
19 days ago
I vaguely recall that the CEO's involvement in the risk system was a big issue. It seems like a conflict of interest that could lead to problems.
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Filiberto
24 days ago
I’m not entirely sure, but I feel like it might have something to do with the traders smoothing profits. That sounds familiar from our practice questions.
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Rosalyn
1 month ago
I think the major cause was related to how traders concealed losses. I remember studying about the importance of transparency in trading.
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Scot
1 month ago
Okay, let me think this through step-by-step. I need to recall the key facts about the National Australia Bank FX Options case and match them to the answer choices. This will take some careful analysis.
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Becky
1 month ago
Ah, I remember this case study from the lectures. I'm pretty confident the answer is C - the currency traders were smoothing profits and concealing losses.
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Salome
1 month ago
Hmm, I'm a bit unsure about this one. The options seem to cover a range of potential issues, but I'll need to think through the specifics of the case study to figure out the right answer.
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Kindra
1 month ago
This seems like a straightforward case study question. I'll need to carefully review the details to determine the major cause of the loss event.
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Tresa
8 months ago
If the CEO was allowing traders access to the risk system, that's a huge oversight. A should be the answer - they were giving the wrong people the keys to the kingdom.
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Nada
8 months ago
D has to be a joke, right? A management buyout as the cause of the loss event? That's just too absurd to be true.
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Suzi
8 months ago
B) Currency traders concealed losses using back office knowledge.
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King
8 months ago
A) Currency traders were allowed access to the risk system by the CEO.
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Thora
9 months ago
I'd go with B. Using back-office knowledge to cover up losses is a common way for currency traders to hide risky positions.
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Goldie
8 months ago
Yeah, currency traders concealing losses with back office knowledge is a big problem.
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Willard
8 months ago
I think B is the major cause of the loss event.
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Sherron
9 months ago
I'm not sure, I think it could also be C) Currency traders smoothed profits and concealed losses. It's a common practice in the industry.
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Paris
9 months ago
I agree with Jose, it seems like the most plausible reason for the loss event.
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Jose
9 months ago
I think the major cause of the loss event was B) Currency traders concealed losses using back office knowledge.
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Rolf
9 months ago
Option C seems the most likely based on the details provided. Concealing losses through profit smoothing is a classic tactic used by rogue traders.
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Billye
8 months ago
It's definitely a red flag when traders start concealing losses.
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Rosalia
9 months ago
I agree, profit smoothing is a common way to hide losses.
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