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For the National Australia Bank - FX Options case study, large and unusual transaction activity was a concern for what reason?
Correct Answer: C
The National Australia Bank (NAB) FX Options Case Study is a well-known example of operational risk, fraud, and governance failure. What Happened? Traders engaged in unauthorized foreign exchange (FX) options trading, using deep-in-the-money options and other complex instruments. They manipulated profits and losses to smooth earnings and mislead risk managers and auditors. Why Answer C is Correct The traders smoothed both profits and losses to avoid detection and ensure continued trading bonuses. This aligns with PRMIA's Operational Risk Management Guidelines, which highlight that hidden trading losses and smoothing techniques increase financial crime risk. Why Other Answers Are Incorrect Option Explanation: A . Complex structured transactions aided in the smoothing of losses. Incorrect - Smoothing occurred with both profits and losses, not just losses. B . Deep-in-the-money options and other complex structured transactions aided in the smoothing of losses. Incorrect - Profits were also manipulated, making this answer incomplete. D . Deep-in-the-money options aided in the smoothing of losses. Incorrect - This focuses only on deep-in-the-money options and ignores other structured transactions involved in the fraud. PRMIA Reference for Verification PRMIA Fraud and Risk Management Case Studies Basel Principles on Market Risk and Internal Control Failures
