CFA Level I · CFA Level I Exam · Introduction to Risk Management
An investment firm loses money when a trader enters orders in the wrong currency pair because of a keying error, and the firm's controls fail to detect it. This loss is best classified as:
The loss is best classified as operational risk because it results from a human keying error and failed internal controls. Market risk would arise from adverse price moves in an intended position, and credit risk would require a counterparty failing to meet its obligations.
- AOperational riskCorrect
- BMarket risk
- CCredit risk
Explanation
The loss stems from human error and inadequate internal controls, which is operational risk, a non-financial risk. Although exchange rates are involved, the loss was not caused by an adverse market move that was a deliberate exposure, so market risk is wrong. No counterparty defaulted, so credit risk is wrong.
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