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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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Tresa
1 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
1 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
30 days ago
B) Currency traders concealed losses using back office knowledge.
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King
1 months ago
A) Currency traders were allowed access to the risk system by the CEO.
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Thora
2 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
28 days ago
Yeah, currency traders concealing losses with back office knowledge is a big problem.
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Willard
1 months ago
I think B is the major cause of the loss event.
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Sherron
2 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
2 months ago
I agree with Jose, it seems like the most plausible reason for the loss event.
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Jose
2 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
2 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
2 months ago
It's definitely a red flag when traders start concealing losses.
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Rosalia
2 months ago
I agree, profit smoothing is a common way to hide losses.
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