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.
Incorrect – This focuses only on deep-in-the-money
options and ignores other structured transactions
involved in the fraud.
D . Deep-in-the-money options aided in the
smoothing of losses.
PRMIA Reference for Verification
PRMIA Fraud and Risk Management Case Studies
Basel Principles on Market Risk and Internal Control Failures
