Question 3 (10 marks) -Risk Management in banking Read the scenario below and answer the questions that follow:

Bank B is one of the largest banks in the country, with many branches countrywide. Just like other banks, the bank is exposed to several risks.

Below are some of the risks recorded during the last 12 months.

• Daily losses of R5 per branch due to teller shortages. Cumulative losses for the 12-month period amount to R10 000. The bank decided against insuring these small losses because the cost involved would outweigh the benefits.

• Cumulative loss of R150 million from its foreign exchange trading desk,aquarterofthebankscapital. Averagedailylosseswereabout R400 000, and most positions were not hedged. The loss has significantly affected the banks operations.

• Flooding caused extensive damage to one of the banks branches, destroying property worth R5 million. This is the second incident recorded by the bank since its establishment 20 years ago.

The three risks identified are teller shortages, foreign exchange trading desk and flooding.

3.2 Identify the ideal risk-mitigation strategy for each type of risk identified in the scenario above. Motivate your answer. (Note: there is only one mitigation strategy for each risk event.) (6)