nayizhenfeng

10、Nicholas Leeson is identified with which of the following?

A) Nikkei stock index futures.
 
B) Commodity Futures Trading Commission. 
 
C) Sumitomo. 
 
D) Metallgesellschaft AG. 

nayizhenfeng

 The correct answer is A

Nicholas Leeson was a trader for Barings PLC and was speculating in Nikkei options and futures.

[此贴子已经被作者于2009-7-2 13:09:02编辑过]

nayizhenfeng

 The correct answer is A

Balance sheet leverage is created when a hedge fund, for example, borrows money to establish investment positions. It is measured by relating the value of the fund’s assets to its equity. If the hedge fund has not balance sheet leverage, the assets are equal to the equity. However, a fund with no balance sheet leverage can still be exposed to leverage via the investments in the portfolio. For example, a forward contract has instrument or economic leverage because small changes in the underlying asset create large changes in the value of the contract. Total leverage is the combined effect of balance sheet leverage and economic, or instrument, leverage.

nayizhenfeng

8、Which of the following factors contributed to the collapse of Barings Bank?

A) A maturity mismatch between the hedging instrument and the risk being hedged.
 
B) Basis risk.
 
C) Japanese financial reporting requirements.
 
D) A trader having authority in the settlement process. 

nayizhenfeng

 The correct answer is D

In an effort to recover trading losses, Nick Leeson abandoned hedged arbitrage strategies on the Nikkei 225 in favor of extremely speculative strategies that exposed the firm to enormous risk in the event of a market downfall. His activities went undetected because his influence on the settlement process and back-office operations allowed him to report phony gains to management. Reporting requirements, basis risk, and maturity mismatch were not factors in the collapse.

nayizhenfeng

9、In general, the bankruptcy of Barings Bank might have been avoided with:

A) pricing models less vulnerable to model risk. 
 
B) a more moderate use of leverage.
 
C) stronger reporting and control systems. 
 
D) maturity matching between the hedging instrument and the asset being hedged. 

nayizhenfeng

 The correct answer is C

In general, the Barings Bank collapse was the result of poor operational controls characterized by poor reporting systems, weak management oversight, and poor organizational structure. Leeson’s dual responsibility for trading and settlement enabled him to hide trading losses in accounts that were not reported to management. Although a history of legal problems would have precluded him from trading on the LIFE, he was permitted to trade in Singapore. Model risk and leverage were issues in LTCM. Using short-term instruments to hedge long-term risk exposure was an issue in Metallgesellschaft.

nayizhenfeng

5、The high degree of operational risk in the Sumitomo case was illustrated by which of the following?

  I. Model risk.
 II. Lack of informed supervisors to approve large trades.
III. High degree of autonomy, allowing the trader to execute highly levered positions.
IV. The trader’s ability to keep two sets of books trading books and hide trading losses.

A) I only. 
 
B) II, III, and IV. 
 
C) I and IV only. 
 
D) II and III only. 

nayizhenfeng

The correct answer is B

The lack of operational oversight gave Sumitomo’s copper trader the autonomy to execute large highly-levered transactions in the spot market. The large trades in the both the spot and futures market should have required the approval of a supervisor who was informed about the trader’s strategies and competent to understand them. The trader’s broad authority allowed him to manipulate the reporting system and thereby hide his huge losses. Model risk is the risk that a hedging or pricing model is flawed, which is not pertinent in this case.

nayizhenfeng

6、Which of the following are examples of model risk illustrated in the Long-Term Capital Management case?

  I. Poor management oversight.
 II. Financial reporting standards.
III. Ignoring autocorrelation of economic shocks.
IV. Underestimating correlations among asset classes during economic crises.
A) II, III, and IV only. 
 
B) III and IV only.
 
C) I, II, III, and IV.
 
D) I only.