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Answer: The data capture system of Bank JKY fails to capture correct market prices, causing OTC derivative trades to occur at incorrect prices and resulting in significant losses.
The correct answer is B. This loss was caused by an error in transaction capture, which is classified as an operational loss in the Execution, Delivery and Process Management category. The other options are incorrect for the following reasons: - Option A is an operational risk in the Clients, Products and Business Practices classification related to disputes over performance of advisory activities. - Option C is a loss in the Internal Fraud category. - Option D is an example of a credit risk loss for Bank JKY, even though it resulted from an operational risk event at the counterparty. Also, monetary loss due to a cyber-attack should be classified by the client in the External Fraud category.
Author: LeetQuiz Editorial Team
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In the context of operational risk types, as elaborated by the senior risk consultant during the discussion, which of the following operational losses should Bank JKY classify under the Execution, Delivery, and Process Management category?
A
A client files a lawsuit against Bank JKY for a breach of fiduciary responsibility in the client's investment account, and Bank JKY pays a monetary settlement to the client.
B
The data capture system of Bank JKY fails to capture correct market prices, causing OTC derivative trades to occur at incorrect prices and resulting in significant losses.
C
A rogue trader makes a series of unauthorized derivative trades, which are liquidated by Bank JKY for a sizable loss after the trades are discovered.
D
A corporate client of Bank JKY suffers a major financial loss from a cyber-attack and is therefore unable to make payments on its debt to Bank JKY, which triggers a default.
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