Manufacturing plants in Arundia have recently been acquired in substan

Question

Manufacturing plants in Arundia have recently been acquired in substantial numbers by investors from abroad. Arundian politicians are proposing legislative action to stop such investment, justifying the proposal by arguing that foreign investors, opportunistically exploiting a recent fall in the value of the Arundian currency, were able to buy Arundian assets at less than their true value.

Which of the following, if true, casts the most serious doubt on the adequacy of the Arundian politicians' justification for the proposed legislation?

(A) The Arundian government originally welcomed the fall in the value of the Arundian currency because the fall made Arundian exports more competitive on international markets

(B) Foreign investors who acquired manufacturing plants generally did so with no intention of keeping and running those plants over the long term.

(C) Without the recent fall in the value of the Arundian currency, many of the Arundian assets bought by foreign investors would have been beyond the financial reach of those investors.

(D) In Concordia, a country broadly similar to Arundia, the share of manufacturing assets that is foreign-controlled is 60 percent higher than it is in Arundia.

(E) The true value of an investment is determined by the value of the profits from it, and the low value of the Arundian currency has depressed the value of any profits earned by foreign investors from Arundian assets.

Arundian Manufacturing

Step 1: Identify the Question

The question asks which answer casts the most serious doubt, so this is a  Weaken the Argument  question.

Step 2: Deconstruct the Argument

Goal: stop for. invest

Recent fall currency

Bought assets < true value

Step 3: Pause and State the Goal

On Weaken questions, the goal is to find an answer that makes the conclusion less likely. In this problem, you are specifically asked to undermine the justification for the proposed legislation. Review the argument if needed to locate this justification: foreign investors bought assets at less than their true value.

Step 4: Work from Wrong to Right

(A) This answer provides increased exports as an advantage of the fall in value of the currency. It does not, however, directly address the issue of whether assets were bought below their true value.

(B) There could be other issues if the investors plan to sell in the short-term, but they would be unrelated to the justification of the politicians Plans to sell in the short-term might even suggest that assets are undervalued (so investors are trying to sell quickly to make a profit) and thus support the politicians’ argument.

(C) Foreign investors presumably have most of their wealth in other currencies; when the relative value of Arundian currency falls these investors may be able to afford and then buy more assets in Arundia. This answer suggests just such a relationship, and potentially supports the politicians’ claim to the extent that the prices paid were below fair value.

(D) It is not clear how the situation in Concordia relates to Arundia. On one hand, Arundian politicians could be concerned about a lot more foreign investment. On the other hand, Concordia might be seen as an example that foreign investment does not harm a country. In either case, this information does not directly relate to the justification for the new legislation in the argument (i.e. whether the assets bought by foreign investors were bought below true value).

(E) CORRECT . This answer implies that the politicians may have been misinterpreting true value.   If true value is based on the profits  , the  decrease in value of the currency  would have  decreased these profits , thus  lowering the true value of the assets . Thus, investors may have paid a fair price, undermining the justification of the politicians.

Argument Evaluation

Situation  After a recent fall in the value of Arundian currency, foreign investors have been acquiring many Arundian manufacturing plants. Arundian politicians are proposing legislation to stop such investment.

Reasoning   What would most undermine the Arundian politicians' justification for the proposed legislation?  The politicians are justifying their proposal by claiming that foreign investors have been exploiting the fall in the currency's value by buying Arundian assets at less than their true value (whatever that means). Any evidence that their claim is false or meaningless would undermine their justification for the proposal, as would any evidence that the claim, even if true, does not provide a good reason to stop the foreign investments.

(A) This suggests that the foreign investors got a good deal on the manufacturing plants, since it provides evidence that those plants will now be more competitive and profitable. So, if anything, it supports the politicians' justification for their proposal rather than undermining it.

(B) This suggests that the foreign investors generally believe the manufacturing plants are undervalued, and intend to sell them at a profit as soon as the currency rises enough. So, it supports the politicians' justification for their proposal rather than undermining it.

(C) This suggests that the recent fall in the currency's value made Arundian assets cost less than usual for foreign investors, thus arguably allowing the investors to buy the assets at   less than their true value  . So, if anything, it supports the politicians' justification for their proposal rather than undermining it.

(D) The Arundian politicians might consider the example of Concordia to be a warning of the disaster that could befall Arundia unless the legislation is enacted. So, the situation in Concordia might be cited as support for the politicians' justification of their proposal.

(E) Correct . This implies that the fall in the Arundian currency's value has reduced the  true value  of Arundian manufacturing plants and any profits they may make, so it undermines the politicians' claim that the foreign investors exploited the fall in the currency's value to acquire the plants for less than their  true value .

GMATNinja · Accepted Answer

The Arundian politicians' justification is that "foreign investors, opportunistically exploiting a recent fall in the value of the Arundian currency, were able to buy Arundian assets at less than their true value."

Sure, if the investors wanted to keep and run the plants over the long term, they might eventually sell the plants for a profit, but that strategy would not entail "opportunistically exploiting a recent fall in the value of the Arundian currency."

However, if the investors had NO intention of keeping and running those plants, then the investors might just buy the plants while prices are down, wait for prices to go back up, and sell the plants back for a profit. That strategy WOULD involve "opportunistically exploiting a recent fall in the value of the Arundian currency." Thus, choice (B) actually supports the politicians' justification and does not weaken it.

Hopefully that helps eliminate (B), but let us know if it's still unclear!

KarishmaB · Answer

Plants are being acquired by foreigners.
Politician's justification: foreign investors, opportunistically exploiting a recent fall in the value of the Arundian currency, were able to buy Arundian assets at less than their true value. (foreign investors bought these plants at less than true value due to fall in currency)

Politicians' plan: Stop this buying.

What will cast doubt on the politician's justification? 
What justification? that foreign investors bought these plants at less than true value due to fall in currency

(A) The Arundian government originally welcomed the fall in the value of the Arundian currency because the fall made Arundian exports more competitive on international markets

What benefits the country had due to fall in currency is irrelevant. The logic is that the country is getting hurt because of the fall in this case and that needs to be stopped. Fair enough. 
If a certain phenomenon brings in some good and some bad, you will not accept the bad because of the good, right? You will try to mitigate the bad. Say strong northerly winds bring in rain (which is much needed in the region) but also cause destruction of trees. If the govt suggests reinforcing the boundary, it is justified. We will try to mitigate the ill effect even if we are happy about some good it is bringing in.

(B) Foreign investors who acquired manufacturing plants generally did so with no intention of keeping and running those plants over the long term.

Not the point of the argument. We need to question the justification - are the foreigners buying at less than true value due to fall in currency?

(C) Without the recent fall in the value of the Arundian currency, many of the Arundian assets bought by foreign investors would have been beyond the financial reach of those investors.

Whether the investors would have bought otherwise is irrelevant. The point is are they now buying at less than true value?

(D) In Concordia, a country broadly similar to Arundia, the share of manufacturing assets that is foreign-controlled is 60 percent higher than it is in Arundia.

Irrelevant.

(E) The true value of an investment is determined by the value of the profits from it, and the low value of the Arundian currency has depressed the value of any profits earned by foreign investors from Arundian assets.

This tells us that due to the weakening of the currency, the true value has also weakened. So the true value is now lower. So the fall incurrence has impacted both the price and the true value. Hence, now we cannot say that the foreigners are buying at less than true value.

Answer (E)

egmat · Answer

Passage analysis   
 
 Manufacturing plants in Arundia have recently been acquired in substantial numbers by investors from abroad. 
 Foreign investors have recently bought a good number of manufacturing plants in Arundia. 
  Arundian politicians are proposing legislative action to stop such investment, 
 Arundia’s politicians want to put a stop to this kind of investment.
They want to enact laws for this purpose. 
 justifying the proposal by arguing that foreign investors, opportunistically exploiting a recent fall in the value of the Arundian currency, were able to buy Arundian assets at less than their true value. 
 They are defending their objection by saying that:
Foreign investors have taken undue advantage of a recent decrease in the value of Arundia’s currency.
They have bought assets (manufacturing plants) at a much lower price than the true value of these assets.

Conclusion  
Arundian politicians claim that foreign investors, have exploited the opportunity presented by a recent fall in the value of the Arundian currency, and have bought Arundian assets at less than their true value.

Pre-thinking 
 Weaken Framework 
Now per our understanding of the passage, let’s first write down the weaken framework:

What new information will make us believe less in the politicians’ claim that
Foreign investors have exploited the opportunity presented by a recent fall in the value of the Arundian currency and have bought Arundian assets at less than their true value.

Given that
There has been a recent fall in the value of Arundia’s currency.
 
 Thought process

The politicians have based their objection on one sole fact- fall in the currency value.
Had the currency value not been down, the price of the assets would have been higher for the foreign buyers.

The politicians have taken it for granted that the fall in the value of the currency did not impact the value of the assets. That is, the politicians believe that the manufacturing plants were in no way negatively impacted by the fall in the value of the currency.

What if the manufacturing plants were negatively affected by the fall in the currency, that also brought down their market value, much before the investors bought them.

Weakener 1

So, if an answer choice says that the market price of the manufacturing plants had already reduced even before the foreign investors bid for them, then it will weaken the conclusion.

Weakener 2

The justification that the politicians are offering for the proposal to stop foreign investments Is that the investors are getting more value from the assets than they are paying for it. They are accusing the investors of “exploiting” the decrease in the value of currency.

So, if an option statement shows that the investors are not really gaining more from the assets than they are paying for them, then it will weaken the politicians’ justification for the proposal.
 
 Answer Choice Analysis 
 Option A

This just indicates the duality in the politicians’ claim. They were happy when they could gain from the decreased currency value situation. And started objection the moment things apparently went against their expectations. But the option does not really weaken their justification for the anti-investment proposal. Thus, this is not the correct choice.

Option B

The reason behind the foreign investment does not really prove that the investors were not really exploiting the opportunity. In fact, in a remote way, it justifies the politicians’ concerns about the foreign investments. This option suggests that the foreign investors were really out to make profits from the currency decrease situation.
Thus, this is not the correct choice.

Option C

This supports the politicians’ claims that the foreign investors cashed in on the opportunity.
Thus, this is not the correct choice

Option D 
 
 This does not resemble a parallel situation since we do not know the currency value situation in Concordia. This is completely irrelevant to the situation. Thus, this is not the correct choice.

Option E

This option is in line with our weakener 2.
This shows that the foreign investors really did not get more for less value. This weakens the justification used by the politicians for their proposal to stop investments.
Thus, this is the correct choice.

guptalavi24 · Answer

E for me

a,c,d- out of scope
b- did not discussed the reasoning of the argument

e- if profits decide the real cost of investment then foreign investors are at loss, not in profit as stated by politician,

adkikani · Answer

Hi Experts, 
I narrowed down to B and E, but could not eliminate B

Conclusion: Arundian politicians propose to stop foreign investment

Premise: how to politicians justify above statement, They do so as follows:
Recently value of arundian currency fell -> this led foreign investors to buy assets at lower value.

Goal: To show another reason that why foreign investors were able to buy assets at lower value had they not exploited the fall in currency values.

Pre-thinking: Say foreign investors intend to have plants running over longer period to maximize the profits earned from them, then justification of politicians is weakened.
Option B matches this line of reasoning.

Option E: Here we introduced another linkage which again disproved politician's judgement:
Recently value of arundian currency fell -> have led to decrease in profits earned by foreign investors -> leading to true value deterioration of investment.

Let me know your views.

Lucy Phuong · Answer

Hi, You can take a look at my comments while waiting answers from experts. First, in my opinion, the goal you identify might be not accurate, thus leading to your favoring option (B) Instead, the stated goal should be: proving that investors do not take advantage from "buying Arundian assets at less than their true value." Accordingly, pre-thinking assumption could be the investors don't buy Arundian assets at less than their true value. How could that be true? Maybe true value of these assets is already as low as their selling price! Option B actually talks nothing relevant to what we've just discussed. Furthermore, "keeping and running those plants over the long term" doesn't necessarily result in an increase in profits. In reality, long-term operation brings about both opportunities and risks. Therefore, don't assume that it will lead to positive results only. Option E proves why true value of an investment is actually lower than expected, explaining why investors don't take any advantage from the difference in selling price and true value! Should u have any question, feel free to ask me.

AbhiGarg2007 · Answer

ChiranjeevSingh

Please validate the reasoning.

Manufacturing plants in Arundia have recently been acquired in substantial numbers by investors from abroad. Arundian politicians are proposing legislative action to stop such investment, justifying the proposal by arguing that foreign investors, opportunistically exploiting a recent fall in the value of the Arundian currency, were able to buy Arundian assets at less than their true value.

Which of the following, if true, casts the most serious doubt on the adequacy of the Arundian politicians' justification for the proposed legislation?
A. The Arundian government originally welcomed the fall in the value of the Arundian currency because the fall made Arundian exports more competitive on international markets    (Govt might have welcomed the fall in currency "ORIGINALLY", but what about now !)   
B.Foreign investors who acquired manufacturing plants generally did so with no intention of keeping and running those plants over the long term.    (Supports the argument- Intention of Trading )  
C.Without the recent fall in the value of t he Arundian currency, many of the Arundian assets bought by foreign investors would have been beyond the financial reach of those investors.    (Support the argument)   
D. In Concordia, a country broadly similar to Arundia , the share of manufacturing assets that is foreign - controlled is 60 percent higher than it is in Arundia.    (Out of scope and irrelevant)   
E. The true value of an investment is determined by the value of the profits from it , and the low value of the Arundian currency has depressed the value of any profits earned by foreign investors from Arundian assets.  (If true value will remain depressed, then investors would not get benefited )

dcummins · Answer

Justification for legislation: overseas investors are exploiting lower foreign exchange rates and are purchasing Arundian assets for less than what they’re worth.
 
 (A) The Arundian government originally welcomed the fall in the value of the Arundian currency because the fall made Arundian exports more competitive on international markets
 Provides a parallel example for the effect of a depreciating foreign exchange rate. If anything this would support to curtail foreign investment.

(B) Foreign investors who acquired manufacturing plants generally did so with no intention of keeping and running those plants over the long term.
 This would be another example in favour of the proposal because not only are the foreign investors exploiting the depreciating foreign exchange rate, they are also bad investors.

(C) Without the recent fall in the value of the Arundian currency, many of the Arundian assets bought by foreign investors would have been beyond the financial reach of those investors.
 I actually selected this as the answer and here's why: I understand that assets are typically valued in local currency, so a depreciating FX rate would encourage investors to enter the market, but acquire assets at their local valuations. This is a case of what happens when you bring in outside knowledge.

I incorrectly overlooked the fact that the valuation is viewed globally in terms of a foreign buyers eyes, and so that buyer, who once saw an Arundian asset for $100k on the share market, will now see that same asset for considerably less, say $50k.

This answer choice actually strengthens.

(D) In Concordia, a country broadly similar to Arundia, the share of manufacturing assets that is foreign-controlled is 60 percent higher than it is in Arundia.
 The proportion of foreign owernship in another country is irrelevant to the proposed legislation. No two countries are the same.

(E) The true value of an investment is determined by the value of the profits from it, and the low value of the Arundian currency has depressed the value of any profits earned by foreign investors from Arundian assets.
 
E tells us that the 'true value' is based on profits and despite the fact that the depreciation of the Arundian currency has depressed the value of any profits investors are still investing in Arundian assets. This suggests that they may have other motifs and aren't exactly looking to 'exploit' the opportunity to seize a lower valued company.

Mraax · Answer

If the investors wanted to keep and run the plants over the long term, make for a profit, but that would not mean "opportunistically exploiting a recent fall in the value of the Arundian currency." Hence E

brains · Answer

I have an issue with the explanation provided for B that it supports the argument. Here is what i am thinking. Please correct me if i am wrong. Choice B says that the investors bought the assets with no intention of keeping it for long term. So, it naturally means that they would keep it for short term ,which you have described above. Now , obviously if they keep it for short term, they would have to sell it( And this thing has been bothering me for a while that it should directly impact the conclusion).Now here comes a slight assumption , which i think was assumed while you described that B supports the argument. You assumed that , they would wait for the prices to go back up and sell for a profit. Are we not assuming here that the prices would go up and then investors would sell. What if the prices further went down ? Then in that case, will it support? No right!. So , can we say that to support the argument, we have assumed that prices would go up and investors would sell for a profit then. Keeping it fixed that they would sell it for short term, what if til that short term prices would go down only . We know for sure that statement has to directly impact the argument without assumption.

GMATNinja  Please let me know , if it really supports or it has no impact.

GMATNinja · Answer

(B) discusses the  intention  of foreign investors. So, which intention makes more sense?

1) Exploiting a dip in the value of a certain business by buying cheap and selling for a profit; or
2) Buying a business for cheap and then selling it at a loss.

Clearly, if we're talking about  intention,  it makes much more sense for investors to plan to exploit the situation and sell the business when the price goes back up. So, we can say with some confidence that this is exactly what the investors intend to do.

Because this is the investors' intention, (B) supports the plan to stop these foreign investments.

Now, of course there's no guarantee that it will ACTUALLY play out exactly this way -- maybe Arundian currency will continue to go down, and the investments won't pan out as the investors intended. But because the investors  plan  to do exactly what the politicians fear, (B) supports the politicians' plan to stop the investments.

I hope that helps!

Elite097 · Answer

MartyTargetTestPrep   ThatDudeKnows  i am not able to follow the logic for A and why it is wrong. Pls also tell the linkage of A to the passage to justify why it is wrong and when it would have been correct

VerbalBot · Answer

Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

Want to see all other topics I dig out? Follow me (click follow button on profile). You will receive a summary of all topics I bump in your profile area as well as via email.

Manufacturing plants in Arundia have recently been acquired in substan

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

GMAT Critical Reasoning (CR) Questions

Manufacturing plants in Arundia have recently been acquired in substan

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards