Answer-first summary for fast verification
Answer: Management failed to investigate high levels of reported profits even though they were associated with a low-risk trading strategy.
B is correct. Leeson was supposed to be running a low-risk, limited return arbitrage business out of his Singapore office, but in actuality he was investing in large speculative positions in Japanese stocks and interest rate futures and options. When Leeson fraudulently declared very substantial reported profits on his positions, management did not investigate the stream of large profits even though it was supposed to be associated with a low-risk strategy.
Author: LeetQuiz Editorial Team
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Which of the following statements best reflects the analyst's insights into the contributing causes of Barings Bank's collapse, considering historical context and the specific financial risks involved?
A
Leeson avoided reporting the unauthorized trades by convincing the head of his back office that they did not need to be reported.
B
Management failed to investigate high levels of reported profits even though they were associated with a low-risk trading strategy.
C
Leeson traded primarily in OTC foreign currency swaps that allowed Barings Bank to delay cash payments on losing trades until the first payment was due.
D
The loss at Barings Bank was detected when several customers complained of losses on trades that were booked to their accounts.
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