RSK4804
EXAM PACK
, lOMoARcPSD|18222662
CONFIDENTIAL
Page 2 of 26 RSK4804
January/February 2024
QUESTION 1 [10]
When anyone is planning to acquire, keep or sell shares in a business, the financial health
thereof is of the utmost importance. According to Prof Edward Altman, the Z-score can be used
to predict with 95% accuracy the risk of a business going bankrupt within a year, and with 72%
accuracy, within two years. Banks use similar information to make lending decisions. As a credit
analyst for Saamtrek Bank, use the information below to calculate the bankruptcy risk of
Matimba Transport (Pty) Ltd using Altman’s Z-score, and then give your recommendation.
The following ratios are completed for Matimba Transport (Pty) Ltd for FY 2021:
o working capital to total assets ratio = 25% - X1
o retained earnings to total assets ratio = 30% - X2
o profit before interest and tax to total assets = 32% - X3
o market value of equity to book value of debt = 135% - X4
o sales to total assets = 250% - X5
[TURN OVER]
, lOMoARcPSD|18222662
CONFIDENTIAL
Page 3 of 26 RSK4804
January/February 2024
[TURN OVER]
, lOMoARcPSD|18222662
CONFIDENTIAL
Page 4 of 26 RSK4804
January/February 2024
QUESTION 2 [20]
Read the article below and answer all the questions that follow.
How Nick Leeson caused the collapse of Barings Bank
In 1995, the financial markets were shaken by a massive scandal. Barings, one of the most
prestigious banks in the United Kingdom is bankrupt following losses caused by Nick Leeson,
one of its traders, aged 28 years.
London beginning of the year 1990, the prestigious Barings Bank sends one of its traders, a
young Englishman named Nick Leeson born in February 1967, to work in its Singapore branch.
Barings is one of the most reputable financial institutions in all of the United Kingdom.
Founded in 1762 by the Dutch Johann Baring, who had immigrated to England, Barings formed
part of the country’s history. Even the Queen of England was among its clients.
Coming from a relatively modest background (his father is a plasterer), Nick Leeson did not
follow higher education, but this is not a requirement needed to find a job in a bank.
His adolescence was spent at Watford where he attended high school, whereafter he began to
work at Coutts & Company and then spent two years at Morgan Stanley. Here he took up a
position as an operations assistant, allowing him to become familiar with the financial markets
which was gaining more significance towards the end of the 1980s.
Leeson then joined Barings, here he quickly made a good impression within the respectable
establishment. He was promoted on the trading floor and in 1990, was appointed manager in
Singapore where he had to operate on the “futures” of SIMEX (Singapore International
Monetary Exchange). A relentless worker, Nick Leeson quickly became a renowned operator
of the derivative products market on the SIMEX and is considered as one of those who “moves”
the market.
From 1992, Leeson made unauthorised speculative trades that at first made huge contributions
for Barings – up to 10% of the bank’s profits at the end of 1993. He became a star within the
organisation, earning unlimited trust from his London bosses who considered him nearly
infallible.
Barely aged 25, Leeson had a professional situation that he had never dreamed of, even though
he had entered into a professional life about ten years too early.
However, he soon lost money in his operations and hid the losses in an error account, 88888.
He claimed that the account had been opened to correct an error made by an inexperienced
member of the team.
[TURN OVER]
EXAM PACK
, lOMoARcPSD|18222662
CONFIDENTIAL
Page 2 of 26 RSK4804
January/February 2024
QUESTION 1 [10]
When anyone is planning to acquire, keep or sell shares in a business, the financial health
thereof is of the utmost importance. According to Prof Edward Altman, the Z-score can be used
to predict with 95% accuracy the risk of a business going bankrupt within a year, and with 72%
accuracy, within two years. Banks use similar information to make lending decisions. As a credit
analyst for Saamtrek Bank, use the information below to calculate the bankruptcy risk of
Matimba Transport (Pty) Ltd using Altman’s Z-score, and then give your recommendation.
The following ratios are completed for Matimba Transport (Pty) Ltd for FY 2021:
o working capital to total assets ratio = 25% - X1
o retained earnings to total assets ratio = 30% - X2
o profit before interest and tax to total assets = 32% - X3
o market value of equity to book value of debt = 135% - X4
o sales to total assets = 250% - X5
[TURN OVER]
, lOMoARcPSD|18222662
CONFIDENTIAL
Page 3 of 26 RSK4804
January/February 2024
[TURN OVER]
, lOMoARcPSD|18222662
CONFIDENTIAL
Page 4 of 26 RSK4804
January/February 2024
QUESTION 2 [20]
Read the article below and answer all the questions that follow.
How Nick Leeson caused the collapse of Barings Bank
In 1995, the financial markets were shaken by a massive scandal. Barings, one of the most
prestigious banks in the United Kingdom is bankrupt following losses caused by Nick Leeson,
one of its traders, aged 28 years.
London beginning of the year 1990, the prestigious Barings Bank sends one of its traders, a
young Englishman named Nick Leeson born in February 1967, to work in its Singapore branch.
Barings is one of the most reputable financial institutions in all of the United Kingdom.
Founded in 1762 by the Dutch Johann Baring, who had immigrated to England, Barings formed
part of the country’s history. Even the Queen of England was among its clients.
Coming from a relatively modest background (his father is a plasterer), Nick Leeson did not
follow higher education, but this is not a requirement needed to find a job in a bank.
His adolescence was spent at Watford where he attended high school, whereafter he began to
work at Coutts & Company and then spent two years at Morgan Stanley. Here he took up a
position as an operations assistant, allowing him to become familiar with the financial markets
which was gaining more significance towards the end of the 1980s.
Leeson then joined Barings, here he quickly made a good impression within the respectable
establishment. He was promoted on the trading floor and in 1990, was appointed manager in
Singapore where he had to operate on the “futures” of SIMEX (Singapore International
Monetary Exchange). A relentless worker, Nick Leeson quickly became a renowned operator
of the derivative products market on the SIMEX and is considered as one of those who “moves”
the market.
From 1992, Leeson made unauthorised speculative trades that at first made huge contributions
for Barings – up to 10% of the bank’s profits at the end of 1993. He became a star within the
organisation, earning unlimited trust from his London bosses who considered him nearly
infallible.
Barely aged 25, Leeson had a professional situation that he had never dreamed of, even though
he had entered into a professional life about ten years too early.
However, he soon lost money in his operations and hid the losses in an error account, 88888.
He claimed that the account had been opened to correct an error made by an inexperienced
member of the team.
[TURN OVER]
