Where copying from other sources results in high % similarity, marks will be deducted as shown on...

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Where copying from other sources results in high % similarity, marks will be deducted as shown on the mark-sheet. Therefore, proper use of in-text referencing is important. Avoid direct quotes.

Turnitin will be used to check % similarity.
Do not copy the questions from the textbook as this will increase your % similarity.
Under extreme circumstances where high % similarity indicates copying from written works of other students in CQU, other universities or any other institutions world-wide, the assignment will be reviewed by the academic misconduct board.
If percentage similarity exceeds 20%, marks will be deducted based on a progressive scale as determined by the course co-ordinator.

The report is marked out of 100 and scaled down to 40% of total assessment grade.

Penalty for late submission is 5% per calendar day including Saturday and Sunday.
Section 3: Assignment Task
Case Study: In the mid1980s, Nick Leeson landed a job as a clerk with royal bank Coutts, followed by a string of positionswith other banks, he ended up atBarings, quickly making an impression, and promoted to the trading floor. Before long, Nickwas appointed manager of a new operation in futures markets on the Singapore Monetary Exchange (SIMEX) and was soon making millions for Barings by betting on the future direction of the Nikkei Index. His bosses back in London, who viewed his large profitswith glee, trusted the whizzkid. Leeson and his wife Lisa seemed to have everything: a top salary with bonuses of up to £150,000, weekends in exotic places, a smart apartment, frequent parties and to top it all they seemed to be very much in love. However, the futures trading orchestrated by Nick was in effect fraudulent and Barings wasn’t awarethat it was exposed to any losses. [Source: Nick Leeson, Biography http://www.nickleeson.com/biography/]
Task: Demonstrate your understanding of money and capital markets and financial institutional risk. You are required to research and report on the Nick Leeson story and provide explanations for related issues such as the importance of institutional capital and risk management and the fundamentals of futures contracts.
Source material via Google, YouTube and / or academic and professional articles, and conduct comprehensive research on the Nick Leeson story and how his actions bankrupted the 150 year old institution, Barings. Begin your research with this YouTube Clip - The Nick Leeson Interview https://www.youtube.com/watch?v=-KrIiZDgeLU after which you may enjoy watching the film ‘Rogue Trader’ to get a ‘Hollywood’ version of the events.
Then in report format:

Provide a background to the Nick Leeson story in relation to the Barings saga
Central to the story are futures contracts. Define a futures contract and describe the basic principles behind the use of futures contracts to manage risk exposures.
For investors and borrowers considering setting up a risk management strategy using futures contracts, there is a basic rule that determines the timing of the various buy/sell transactions.
1. Explain this rule [examples from the Nick Leeson story will be highly regarded].
2. Outline the procedure involved in buying a futures contract.
3. Indicate the implications of being long or short in a futures contract.
4. What are the procedures for closing out these positions prior to delivery?
Describe how the Barings management failed in their duty.
Explain why risk management is important to the long-term survival of a corporation including:
1. Define and explain the nature of risk and the purpose of risk management.
2. Discuss who is responsible for the establishment of risk management objectives, policies, procedures and strategies in a corporation.
In light of the Nick Leeson case:
1. Comment on the logic and reasons why risk must be identified, measured and managed.
2. Briefly explain the main functions of capital.
3. Provide an overview of the Basel II capital accord framework of three pillars which established the minimum capital required by a bank and incorporates risk components: credit risk, operational risk and market risk (i.e. define credit risk and explain how a bank calculates its minimum capital requirement.
4. Briefly describe / compare the different types of acceptable capital under the Basel II and Basel III capital accords.

Section 4: Mark-Sheet, Marking Rubrics and APA Quick Reference Guide
To be submitted together with your response as the coversheet of this assignment
Name:_________________________ Campus:__________ Student ID_________

Breakdown of Mark	Actual Mark
Total out of 100
Total out of 40
Penalty @ 1.5 marks per calendar day if no approval for extension to submission deadline
Penalty for high % similarities
Total after applying Penalties

Criteria	Measures of Excellence	HD	D	C	P	US	F
Introduction	The introduction provides a very clear purpose which ensures all areas relevant to the task are clearly outlined. In particular, the report demonstrates an ability to a) unpack the question and articulate the key concepts and b) provides an overview of the response to the question.	5	4	3	2	1	0
Organisation and structure	The ideas are arranged in an extremely logical, structured and coherent manner. Transition statements are clearly used as a guide from one section to the next. Arguments are logical, clear and convincing; establishing clear links between the literature, the argument, findings and conclusions.	5	4	3	2	1	0

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Robert · Accepted Answer

Failure of the Barings Bank 
Nick Leeson was the star performer of the bank as he made $ 10 million of profit for the bank by 
trading in derivatives. He earned huge bonuses and managed to become head of Singapore 
operations of the Bank. He traded in derivatives of the eastern market and made huge profits. It 
was his brilliance that made the bank to allow him the book keeping of the records of the trade 
that he conducted. 
Things were pretty good initially and he was able to generate real profit for the bank. For one 
year his profit was equivalent to one-third of the total profit of the bank. However, the 
manipulation started when Leeson came to know about a secret account used by traders to offset 
position for any wrong trade done by them. He helped his colleagues to recover the losses and 
started Taking bets through “ Five Eight’s” account. The margin requirement for the positions 
taken through these accounts were manipulated by him. Initially he took a chance to ask for the 
money from the head office. He said that the purchase of future contracts were for the client but 
the client did not exist. It was a lie told by Nick to hide his losses and make the margin payment. 
It would have been never discovered had his bets were correct and the market moved as per his 
expectation. This was not to be. 
He made huge losses by betting on the direction of Nikkei Index, the index of the Japanese Stock 
Exchange. He purchased hundreds of future contracts of Nikkei and expected the market to go 
up. It was incredibly dangerous and against all bank rules. If the market goes up he would make 
a great deal of money and he would be able to wipe off his entire loss in one go. But this was not 
meant to be. There were thousands of futures hidden in secret account as Leeson went on adding 
the long contracts when the market moved in opposite direction. 
The final strategy applied by Nick to trade was Short Straddle (Image II- Appendix). Using this 
strategy the traders expect the market to be stable and not show much movement in either 
direction. If this happened, Nick would still be able to cover up losses by receiving the premium 
from the option contracts that he sold. But again the strategy failed and the market took a nose 
dive due to Kobe earthquake (Image I- Appendix). This quadrupled the losses into $ 400 million. 
In a desperate attempt he bought thousands of future contracts in order to move the market single 
handedly in upward direction. If the market moved upward by few points, he would have made 
millions of dollars in just few seconds. But the strategy failed and the market began to fall again. 
His losses were catastrophic. He lost around $ 80 million in a single day. It finally ended when 
the cumulative loss reached to 830 million pounds and bankruptcy was declared for the bank. 
Future Contracts – Principle and Basics 
Future contracts are the agreement between two parties that are interested in purchasing or 
selling a particular asset at some point of time in future, for a given price. These contracts are 
standardized and traded on Stock Exchange. The two parties interested in the contract may or 
may not know each other. In order to provide guarantee for the contracts, the exchange provides 
a  mechanism that assures the participants about the contract that will be obliged. 
Some of the popular future products traded across the globe are Equity Index, currency, 
commodity, Equity Stock and Interest rate futures. The majority of these trade are not meant for 
delivery but the traders opt for closing out their position before the specified delivery period 
approaches. The closing out of position is taking opposite position of the trade as that of original 
contract. If someone has bought a future contract, he may sell the contract and close off hiss 
position and vice versa. 
The terminology used in derivatives are “Long” for buy and “Short” for sale. The details of 
future contracts are specified by the exchange and the agreement between the two parties are as 
per regulations of the exchange. The financial assets used in developing future contracts are very 
well explained and are generally unambiguous. The size of the contract defines the quantity of 
assets that needs to be delivered as an obligation of single contract. For commodities future 
contracts, the place of delivery also needs to be specified by the exchange. This is because of the 
logistics charges involved in the execution of the contracts.  
In order to manage and control speculative activities the stock exchanges fix the daily price 
movement of the future contracts and also to minimize the influence of single trader, the 
exchange also fixes the position limits on the upper side. The price of future contracts tends to 
converge to the spot price as the expiry or delivery date of contracts approaches near. The 
margin requirement is necessary for the future contracts and settlement is done by the exchange 
on the daily basis. Margin settlement are “Marked to Market”. It means any profit that the trader 
make by holding the positions of the contract, the amount is credited to his account on daily basis 
and if the price movement is unfavorable for the trader, the amount of loss made are recovered 
on a daily basis. This mandates the margin requirement to be maintained by the trader for his 
positions in future contracts. 
Future contracts are transacted through clearing house and therefore, it acts as a guarantor  for 
the performance of the two parties holding the contract.

Where copying from other sources results in high % similarity, marks will be deducted as shown on the mark-sheet. Therefore, proper use of in-text referencing is important. Avoid direct quotes....

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