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Answer: There was ambiguity concerning who was responsible for performing specific oversight functions.
## Explanation The correct answer is D because one of the key factors in the Barings Bank collapse was the lack of clear oversight and control mechanisms. Nick Leeson was able to hide his massive losses due to: - **Ambiguity in oversight responsibilities**: Leeson was both the head trader and in charge of back-office operations in Singapore, which created a conflict of interest and allowed him to conceal his unauthorized trading activities - **Inadequate segregation of duties**: There was no proper separation between front-office (trading) and back-office (settlement/accounting) functions - **Poor risk management controls**: The bank failed to implement proper risk limits and monitoring systems Regarding the other options: - **A** is incorrect because Barings' failure was primarily due to unauthorized trading and risk management failures, not insufficient liquidity - **B** is incorrect because Leeson actually used short straddles (selling options) rather than long straddles - **C** is incorrect because Leeson held long positions in Nikkei 225 futures, not short positions The Barings case is a classic example of operational risk failure where inadequate internal controls and oversight allowed a single trader to cause the collapse of a 233-year-old bank.
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In the case of Barings Bank (Barings), Nick Leeson incurred huge trading losses. Which of the following statements correctly describes one of the factors that led to the bankruptcy of Barings?
A
Barings had insufficient liquidity to cover marked to market losses.
B
Leeson used a long straddle strategy on the Nikkei 225.
C
Leeson held speculative double short positions in the market for Nikkei 225 futures contracts.
D
There was ambiguity concerning who was responsible for performing specific oversight functions.