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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 27 Jul 2008, 22:00
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Question Stats:

53% (02:33) correct 47% (01:47) wrong based on 206 sessions
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. Analysis 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
[Reveal] Spoiler: OA
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Re: cr; Investment Banks [#permalink] New post 28 Jul 2008, 00:51
x97agarwal wrote:
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. Analysis 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 For long term success these recommendations should be unbiased , but managers engaged in raising capital will bias the analyst's opinions in their favor so this will hinder long-term success
B. Using reports by the investment bank’s analysts to determine how best to raise capital for a client This will help long term success since reports will be unbiased.
C. Sharing the task of raising capital for a client with other investment banks Out of context
D. Ensuring that conflicts between analysts and those who raise capital for clients are carefully mediated and resolved by impartial arbitrators If analysts give unbiased reports then fine
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 out of context


Will go with A)
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Re: cr; Investment Banks [#permalink] New post 28 Jul 2008, 04:16
i had it down to A or B, and chose B ... i thought that using the analyst's reports constituted an unbiased point of view ?
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Re: cr; Investment Banks [#permalink] New post 28 Jul 2008, 04:32
I will go with C. This option will hinder long term growth.
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Re: cr; Investment Banks [#permalink] New post 28 Jul 2008, 08:48
Close call between A and B. I'll go with B to be safe.

A - does not indicate that mangers will act unbaised or in the best interest of the client.
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Re: cr; Investment Banks [#permalink] New post 28 Jul 2008, 09:05
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Clear A for me.

What hinders long-term success: Analysis of companies’ financial health need to be unbiased if an investment bank is to achieve long-term success

so if the analyst's opinion is biased, this will be detrimental to banks.

if managers from the capital raising side bias the opinions of analyst, this will not be good.

A states exactly that.

in B, the channel of flow is the other way. Managers in the capital raising side will be using the work of analysts and no indication of biased opinions of analysts is apparent here.
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Re: cr; Investment Banks [#permalink] New post 28 Jul 2008, 09:21
x97agarwal wrote:
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. Analysis 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


IMO B, you should not mix and match the analysis. Do independent analysis for raising the capital and for clients intrested in investing
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Re: cr; Investment Banks [#permalink] New post 28 Jul 2008, 14:00
OA is A
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GMATPrep - Investment banks often have conflicting roles [#permalink] New post 27 Oct 2013, 10:42
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

Any thoughts on how to parse the question and relate it to the answer options?
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Re: GMATPrep - Investment banks often have conflicting roles [#permalink] New post 27 Oct 2013, 10:50
Already discussed in the following thread:
investment-banks-often-have-conflicting-roles-they-67971.html
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Do not forget to hit the Kudos button on your left if you find my post helpful 8-)

Collection of some good questions on Number System

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Re: GMATPrep - Investment banks often have conflicting roles [#permalink] New post 27 Oct 2013, 10:56
ah good! Thanks...hopefully this will bump it for people to retry ..:)
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Struggling with Investment banks making a wrong decision [#permalink] New post 31 Jul 2014, 06:09
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

I took following approach.

Structure:
IBs sometimes help companies raise capital and sometimes don't. If the IB needs to succeed, then analyses needs to be un-biased.

Pre-thinking.
Anything that shows that the practice is biased, leads to the right answer.

With this, I chose the answer B. OA is A.
Could you help me understand this?
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Re: Investment banks often have conflicting roles. They [#permalink] New post 31 Jul 2014, 09:27
Expert's post
Re: Investment banks often have conflicting roles. They   [#permalink] 31 Jul 2014, 09:27
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