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Investment banks often have conflicting roles. They

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Investment banks often have conflicting roles. They [#permalink] New post 12 Jul 2007, 08:26
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Investment banks often have conflicting roles. They sometimes act for a client company by raising capital from other investment institutions as advantageously as possible, but their analysts also sometimes send unfavorable reports on the financial health of companies for whom they are raising capital to other clients who wish to make investments. Analyses of companies’ financial health need to be unbiased if an investment bank is to achieve long-term success.

If the statements above are true, which of the following practices, if adopted by an investment bank, would hinder its long-term success?

A. Evaluating and rewarding the bank’s analysts on the basis of recommendations made by managers who are solely engaged in raising capital for clients
B. Using reports by the investment bank’s analysts to determine how best to raise capital for a client
C. Sharing the task of raising capital for a client with other investment banks
D. Ensuring that conflicts between analysts and those who raise capital for clients are carefully mediated and resolved by impartial arbitrators
E. Monitoring the success or failure of analysts’ current predictions about how companies will perform financially, in order to determine the value of future predictions
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 [#permalink] New post 12 Jul 2007, 10:49
I think I would go for answer B for this one.

The question asks which practice if used would hinder the long-term success, the biased opinion will do.

A is out of scope.
D is 180
C and E, I don't know how to explain those. I just don't like those.
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 [#permalink] New post 12 Jul 2007, 11:44
A.

If managers solely engaged in raising capital are the ones determining the analysts' rewards, then the analysts' reports will always be favorable and thus always be biased.
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 [#permalink] New post 12 Jul 2007, 11:47
plaguerabbit wrote:
A.

If managers solely engaged in raising capital are the ones determining the analysts' rewards, then the analysts' reports will always be favorable and thus always be biased.


This is A.
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 [#permalink] New post 12 Jul 2007, 12:20
Quote:
"Analyses of companies’ financial health need to be unbiased if an investment bank is to achieve long-term success.


my vote is for A.

The last statement tells you what is needed to achieve long-term success. The question asks what practices, if followed, would hinder long-tern success.

Unbiased analysis = long term success
Biased analysis = hinder long term success
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Re: Investment banks often have conflicting roles. They [#permalink] New post 06 Feb 2014, 04:07
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Evaluate question.

A. Evaluating and rewarding the bank’s analysts on the basis of recommendations made by managers who are solely engaged in raising capital for clients OK - Rewarding the bank's analyst would compromise the report's integrity; not rewarding the bank's analyst would ensure the report's integrity.

B. Using reports by the investment bank’s analysts to determine how best to raise capital for a client Using the reports would allow for greater transparency than would hinder the bank's long-term success.

C. Sharing the task of raising capital for a client with other investment banks Sharing the risk among banks would allow for long-term success and not hinder it.

D. Ensuring that conflicts between analysts and those who raise capital for clients are carefully mediated and resolved by impartial arbitrators Ensuring conflict are carefully mediated would allow for long-term success and not hinder it.

E. Monitoring the success or failure of analysts’ current predictions about how companies will perform financially, in order to determine the value of future predictions Determining the value of predictions would allow for long-term success and not hinder it.
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Re: Investment banks often have conflicting roles. They [#permalink] New post 08 Jun 2014, 21:23
(A) and (B) are strong contenders.

But not convinced why (B) is rejected.

When we know that analysts are sending unfavorable reports, we know that on the basis of these reports only the bank will take a decision as to how best to raise a capital for a client. So, it would be erroneous to act on the basis of the reports sent by analysts since the reports are not genuine.

I know (A) is strong too since when you evaluate analysts based on recommendations of managers handling raising of capital. We can assume that the managers are corrupt and both the analysts and the managers are working against the success of the bank.
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Re: Investment banks often have conflicting roles. They   [#permalink] 08 Jun 2014, 21:23
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