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Answer: Management failed to investigate high levels of reported profits even though they were associated with a low-risk trading strategy.
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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Barings Bank was forced to declare bankruptcy after reporting over USD 1 billion in unauthorized trading losses by a single trader, Nick Leeson. Which of the following statements concerning the collapse of Barings Bank is correct?
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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