baring bank assignment Dr Nik

Topics: Barings Bank, Derivative, Nick Leeson Pages: 4 (906 words) Published: December 26, 2014
CASE STUDY ASSIGNMENTS
BARING BANKS AND NICK LEESON

QUESTION :
1. What are the major reason behind the collapse of Barings bank? ANSWER :
The major reason behind the collapse of Barings bank was caused by the largest earthquake that destroyed the part of Kobe City on 17 January 1995, where the Nikkei index fell sharply. This incident caused Barings Bank collapsed in 1995 due to high the loss, which is very far above their capital. This was due to not being able to meet the obligations of trading, Leeson opened on behalf of the Bank. Nicholas William Leeson, which is popularly called Nick Leeson have do dark transaction, which is actually outside its authority in 1992. Shortly, after he was allowed to trade derivatives at Barings Futures Singapore (BFS), a business unit of Baring Bank who runs the Bank's activities in SIMEX (Singapore International Monetary Exchange).

QUESTION :
2. What are the management boards of Baring’s mistakes in this case? ANSWER :Management boards of Baring’s mistake in this case is Barings top management do not understand about the proprietary business (transactions for its own sake). If Barings' auditors and top management understand the business of trading, they would know that it is impossible for Leeson to makes a profit as he reported, if not taking greater risks as well. Top management and auditors should question where it came from such earnings. Lack of knowledge about the business of trading in Barings is reasonable given that most senior managers have a background Barings merchant banking. The members of the Assets and Liability Committee (ALCO), which monitors the market risk expressed concern about the amount of the position taken by Leeson, but then feel uncomfortable with the idea that the exposure to market risks Barings relatively small because Leeson top hedge these positions. Besides, there is no internal mechanism of checks and balance. Barings management violated an important rule in the business of...
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