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© 2014 Pearson Canada Inc.$7 ) A reason why rogue traders have bankrupt their banks is due to ____.
A) the separation of trading activities from the bookkeepers
B) stringent supervision of trading activities by bank management
C) accounting errors
D) a failure to maintain proper internal controls
Answer: D
Diff: 3 Type: MC Page Ref: 318
Skill: Recall
Objective List: 13.5 Illustrate how off-balance-sheet activities affect bank profits
One way for banks to reduce the principal-agent problems associated with trading activities is
to ____.
A) set limits on the total amount of a traders' transactions
B) make sure that the person conducting the trades is also the person responsible for recording
the transactions
C) encourage traders to take on more risk if the potential rewards are higher
D) reduce the regulations on the traders so that they have more flexibility in conducting trades
Answer: A
Diff: 1 Type: MC Page Ref: 318
Skill: Recall
Objective List: 13.5 Illustrate how off-balance-sheet activities affect bank profits
The principal-agent problem that exists for bank trading activities can be reduced through
____.
A) creation of internal controls that combine trading activities with bookkeeping
B) creation of internal controls that separate trading activities from bookkeeping
C) elimination of regulation of banking
D) elimination of internal controls
Answer: B
Diff: 3 Type: MC Page Ref: 318
Skill: Recall
Objective List: 13.5 Illustrate how off-balance-sheet activities affect bank profits
1 0) Banks develop statistical models to calculate their maximum loss over a given time period.
This approach is known as the ____.
A) stress-testing approach
B) value-at-risk approach
C) trading-loss approach
D) doomsday approach
Answer: B
Diff: 3 Type: MC Page Ref: 318
Skill: Recall
Objective List: 13.5 Illustrate how off-balance-sheet activities affect bank profits