A Bank Is Establishing a Fixed Income Trading Department

question 50

Multiple Choice

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 to 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.

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Definitions:

Psychic Energy

A term used in psychoanalytic theory to describe the force or drive behind human behavior, thoughts, and feelings.

Opposites

Elements or ideas that are diametrically different from each other, often used to highlight contrast or balance.

Equivalence

The condition of being equal in value, function, meaning, or status.

Entropy

In thermodynamics, a measure of the disorder or randomness in a system, often metaphorically applied to describe chaos in various contexts.