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History has shown that severe and sudden political [#permalink]
07 Aug 2004, 23:29
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History has shown that severe and sudden political instability strikes the Republic of Balanda roughly once every 50 years. The most recent example was the attempt on the president's life in 1992. The reaction of average investors in Balanda to crisis situations in the country cannot be predicted in advance. The government's fiscal affairs department has introduced an electronic protection mechanism into the market in the hopes of avoiding a prolonged large-scale selloff. The mechanism is triggered in speicific instances based on estimations of how average invetsors will react to changes in corporate data and economic indicators.
If the statements above are true, which of the following conclusions can be drawn regarding the electronic protection maechanism?
(a) Sometime within the next 50 years sever and sudden political instability in Balanda will trigger the protection mechanism.
(b) Whether the protection mechanism will function appropriately in response to a sudden political event depends on whether the event is seen by investors as positive or negative.
(c) It is unclear how well the protection mechanism would work in the event of a sudden political coup if such an event were partially or wholly unrelated to changes in corporate data and economic indicators.
(d) There would be no way for the protection mechanism to differentiate between the market fluctuations resulting from economic factors and those that are caused by political instability.
(e) The protection mechanism would be purposely destroyed by political insurgents if they were able to infilterate the goven,ents fiscal affairs department.
A with Expl?
(Oh man, it took me 5 minutes to type this completely, apologize for any sp)
It's b/w B and C but I pick C
B) whether the mechanism will function appropriately depends on its capability to detect investors' reactions rather than on whether investors perceive any given event as positive or negative
C) since investors' reaction cannot be predicted in advance, the mechanism's reliability is and predictability is impaired
choice is between B and C. The premises are basically based upon "large-scale selloff", "changes in corporate data" and "changes in economic indicators". If these indicators don't work as desired, then everything will fall apart. But at this point of time it is unclear how these will behave.
The question says "The mechanism is triggered in speicific instances based on estimations of how average invetsors will react to changes in corporate data and economic indicators", it means political events will surely change corporate data and economic indicators.
The key point to the mechanism's effectiveness here is how investors react. See in any political change, the system will be triggered if investors take the event as negative ---> the system works well, If investors take it as positive ---> the system was needless. So B seems correct.
I think it's time for OA.
"Life is like a box of chocolates, you never know what you'r gonna get"
C draws a reasonable conclusion based on teh evidence. If political instability involves changes in corporate data and economic indicators, then the mechanism should work the way it is supposed to work. But, if the incident does not involve those elemnts, then how the mechanism will work becomes unclear, because the behaviour of the investors will be unpredictable.
B goes beyond the scope of the project