A bank is establishing a fixed income trading department.It is considering whether to hire a team of star traders or to invest a similar sum of money in developing a proprietary,automated trading system.The most valid reason for investing in the automated trading system in preference ot hiring star traders is:
A)The proprietary trading system is likely to generate better returns since star traders are in a powerful position to negotiate pay packages which appropriate the major part of the profit they create.
B)Advanced software is better than human intuition at identifying mispricing in financial markets.
C)Star traders are difficult to manage and can easily become "rogue traders".
D)It's difficult to motivate traders once they have earned their first few million.

Question

Quizplus · Accepted Answer

Hiring star traders can be costly as they may demand high compensation, which could significantly reduce the profits they generate for the bank. An automated trading system, on the other hand, does not require such compensation and can potentially retain more of the profits.

A Bank Is Establishing a Fixed Income Trading Department