Module: | MODULE A: INTERNATIONAL BANKING
Q9: Evaluate the following statements regarding the structural segregation of duties within a standard foreign exchange dealing room of a commercial bank. Identify the correct combination.
Statement 1. The Front Office is exclusively responsible for actively trading currencies, interacting with brokers, and initiating foreign exchange positions to generate trading profits.
Statement 2. The Mid Office functions as an independent risk management unit, strictly monitoring the dealers adherence to internal limits and evaluating the overall market risk of the bank open positions.
Statement 3. The Back Office is tasked with the administrative settlement of trades, issuing confirmations to counterparties, and reconciling the Nostro account balances.
Statement 2. The Mid Office functions as an independent risk management unit, strictly monitoring the dealers adherence to internal limits and evaluating the overall market risk of the bank open positions.
Statement 3. The Back Office is tasked with the administrative settlement of trades, issuing confirmations to counterparties, and reconciling the Nostro account balances.
✅ Correct Answer: D
🎯 Quick Answer:
Option D is the correct choice because all three statements accurately describe the mandatory segregation of duties in a forex treasury.
Concept Definition: A dealing room is the centralized treasury hub where a bank conducts its domestic and international financial market transactions.Structural Breakdown: Statement I is correct.The Front Office consists of the actual dealers.They are the revenue generators who buy and sell currencies, directly executing trades in the interbank market.Statement II is correct.The Mid Office acts as the internal police.To prevent rogue trading, this department operates independently from the Front Office and ensures no dealer exceeds their assigned financial limits or takes on unapproved risks.Statement III is correct.The Back Office handles the post trade life cycle.Once a dealer executes a trade, the Back Office sends the wire transfer messages, transfers the funds, and reconciles the statements to ensure the money actually moved correctly.Causal Reasoning: This strict tripartite segregation is a global regulatory mandate designed to prevent fraud, operational errors, and unauthorized risk taking, ensuring that the person executing the trade cannot also secretly settle or hide it. Option D is the correct choice because all three statements accurately describe the mandatory segregation of duties in a forex treasury.