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The function of capital markets is to facilitate an exchange of funds

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The Official Guide for GMAT Review, 10th Edition, 2003

Practice Question
Question No.: RC 276 ~ 282
Page: 412

The function of capital markets is to facilitate an exchange of funds among all participants, and yet in practice we find that certain participants are not on a par with others. Members of society have varying degrees of market strength in terms of information they bring to a transaction, as well as of purchasing power and creditworthiness, as defined by lenders.

For example, within minority communities, capital markets do not properly fulfill their functions; they do not provide access to the aggregate flow of funds in the United States. The financial system does not generate the credit or investment vehicles needed for underwriting economic development in minority areas. The problem underlying this dysfunction is found in a rationing mechanism affecting both the available alternatives for investment and the amount of financial resources. This creates a distributive mechanism penalizing members of minority groups because of their socioeconomic differences from others. The existing system expresses definite socially based investment preferences that result from the previous allocation of income and that influence the allocation of resources for the present and future. The system tends to increase the inequality of income distribution. And, in the United States economy, a greater inequality of income distribution leads to a greater concentration of capital in certain types of investment.

Most traditional financial-market analysis studies ignore financial markets’ deficiencies in allocation because of analysts’ inherent preferences for the simple model of perfect competition. Conventional financial analysis pays limited attention to issues of market structure and dynamics, relative costs of information, and problems of income distribution. Market participants are viewed as acting as entirely independent and homogeneous individuals with perfect foresight about capital-market behavior. Also, it is assumed that each individual in the community at large has the same access to the market and the same opportunity to transact and to express the preference appropriate to his or her individual interest. Moreover, it is assumed that transaction costs for various types of financial instruments (stocks, bonds, etc.) are equally known and equally divided among all community members.

276. The main point made by the passage is that

(A) financial markets provide for an optimum allocation of resources among all competing participants by balancing supply and demand
(B) the allocation of financial resources takes place among separate individual participants, each of whom has access to the market
(C) the existence of certain factors adversely affecting members of minority groups shows that financial markets do not function as conventional theory says they function
(D) investments in minority communities can be made by the use of various alternative financial instruments, such as stocks and bonds
(E) since transaction costs for stocks, bonds, and other financial instruments are not equally apportioned among all minority-group members, the financial market is subject to criticism


277. The passage states that traditional studies of the financial market overlook imbalances in the allocation of financial resources because

(A) an optimum allocation of resources is the final result of competition among participants
(B) those performing the studies choose an oversimplified description of the influences on competition
(C) such imbalances do not appear in the statistics usually compiled to measure the market's behavior
(D) the analysts who study the market are unwilling to accept criticism of their methods as biased
(E) socioeconomic differences form the basis of a rationing mechanism that puts minority groups at a disadvantage


278. The author’s main point is argued by

(A) giving examples that support a conventional generalization
(B) showing that the view opposite to the author’s is self-contradictory
(C) criticizing the presuppositions of a proposed plan
(D) showing that omissions in a theoretical description make it inapplicable in certain cases
(E) demonstrating that an alternative hypothesis more closely fits the data


279. A difference in which of the following would be an example of inequality in transaction costs as alluded to in lines 40-43 [Moreover, it is assumed that transaction costs for various types of financial instruments (stocks, bonds, etc.) are equally known and equally divided among all community members.]?

(A) Maximum amounts of loans extended by a bank to businesses in different areas
(B) Fees charged to large and small investors for purchasing stocks
(C) Prices of similar goods offered in large and small stores in an area
(D) Stipends paid to different attorneys for preparing legal suits for damages
(E) Exchange rates in dollars for currencies of different countries


280. Which of the following can be inferred about minority communities on the basis of the passage?

(A) They provide a significant portion of the funds that become available for investment in the financial market.
(B) They are penalized by the tax system, which increases the inequality of the distribution of income between investors and wage earners.
(C) They do not receive the share of the amount of funds available for investment that would be expected according to traditional financial-market analysis.
(D) They are not granted governmental subsidies to assist in underwriting the cost of economic development
(E) They provide the same access to alternative sources of credit to finance businesses as do majority communities.


281. According to the passage, a questionable assumption of the conventional theory about the operation of financial markets is that

(A) creditworthiness as determined by lenders is a factor determining market access
(B) market structure and market dynamics depend on income distribution
(C) a scarcity of alternative sources of funds would result from taking socioeconomic factors into consideration
(D) those who engage in financial-market transactions are perfectly well informed about the market
(E) inequalities in income distribution are increased by the functioning of the financial market


282. According to the passage, analysts have conventionally tended to view those who participate in financial markets as

(A) judging investment preferences in terms of the good of society as a whole
(B) influencing the allocation of funds through prior ownership of certain kinds of assets
(C) varying in market power with respect to one another
(D) basing judgments about future events mainly on chance
(E) having equal opportunities to engage in transactions


Originally posted by NaeemHasan on 21 Aug 2017, 01:44.
Last edited by SajjadAhmad on 21 Aug 2019, 05:31, edited 5 times in total.
Updated - Complete topic (244).
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New post 17 Jan 2018, 11:49
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MinHuiii wrote:
Can someone please help me the question 276 and 279 ?


The entire passage talks about the injustice happening to the minority communities. Look for an option that stresses on this point.

276. The main point made by the passage is that

(A) financial markets provide for an optimum allocation of resources among all competing participants by balancing supply and demand
Opposite of what author thinks. Financial markets are being criticized here for not treating the minorities fairly.

(B) the allocation of financial resources takes place among separate individual participants, each of whom has access to the market
passage excerpt : "it is assumed that each individual in the community at large has the same access to the market and the same opportunity to transact "

(C) the existence of certain factors adversely affecting members of minority groups shows that financial markets do not function as conventional theory says they function
Conventional theory supports the perfect model where everyone has equal access. But in reality the markets are not fair to the minorities, who do not have equal access. Correct

(D) investments in minority communities can be made by the use of various alternative financial instruments, such as stocks and bonds
out of scope
(E) since transaction costs for stocks, bonds, and other financial instruments are not equally apportioned among all minority-group members, the financial market is subject to criticism
This is consistent as per passage but only discussed in last paragraph. So, this can not be the main point of the entire passage.
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New post 02 Nov 2017, 07:34
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@ShashankDave
Quote:
278. The author’s main point is argued by

(A) giving examples that support a conventional generalization
(D) showing that omissions in a theoretical description make it inapplicable in certain cases

How to eliminate (A)?


Isn't he giving examples against the conventional generalization? The conventional generalization is that the market is perfect and all the participants of the market have a perfect foresight etc. So, the examples given by the author are against the conventional understanding.
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New post 02 Nov 2017, 12:13
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Got most of the right . But it took me 18 minutes to complete. In a real exam, this needs to be done within 7 mins - am i right?
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New post 27 Oct 2017, 00:43
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NaeemHasan wrote:
The Official Guide for GMAT Review, 10th Edition, 2003

Practice Question
Question No.: RC 276 ~ 282
Page: 412

The function of capital markets is to facilitate an exchange of funds among all participants, and yet in practice we find that certain participants are not on a par with others. Members of society have varying degrees of market strength in terms of information they bring to a transaction, as well as of purchasing power and creditworthiness, as defined by lenders.

For example, within minority communities, capital markets do not properly fulfill their functions; they do not provide access to the aggregate flow of funds in the United States. The financial system does not generate the credit or investment vehicles needed for underwriting economic development in minority areas. The problem underlying this dysfunction is found in a rationing mechanism affecting both the available alternatives for investment and the amount of financial resources. This creates a distributive mechanism penalizing members of minority groups because of their socioeconomic differences from others. The existing system expresses definite socially based investment preferences that result from the previous allocation of income and that influence the allocation of resources for the present and future. The system tends to increase the inequality of income distribution. And, in the United States economy, a greater inequality of income distribution leads to a greater concentration of capital in certain types of investment.

Most traditional financial-market analysis studies ignore financial markets’ deficiencies in allocation because of analysts’ inherent preferences for the simple model of perfect competition. Conventional financial analysis pays limited attention to issues of market structure and dynamics, relative costs of information, and problems of income distribution. Market participants are viewed as acting as entirely independent and homogeneous individuals with perfect foresight about capital-market behavior. Also, it is assumed that each individual in the community at large has the same access to the market and the same opportunity to transact and to express the preference appropriate to his or her individual interest. Moreover, it is assumed that transaction costs for various types of financial instruments (stocks, bonds, etc.) are equally known and equally divided among all community members.
276. The main point made by the passage is that

(A) financial markets provide for an optimum allocation of resources among all competing participants by balancing supply and demand
(B) the allocation of financial resources takes place among separate individual participants, each of whom has access to the market
(C) the existence of certain factors adversely affecting members of minority groups shows that financial markets do not function as conventional theory says they function
(D) investments in minority communities can be made by the use of various alternative financial instruments, such as stocks and bonds
(E) since transaction costs for stocks, bonds, and other financial instruments are not equally apportioned among all minority-group members, the financial market is subject to criticism


277. The passage states that traditional studies of the financial market overlook imbalances in the allocation of financial resources because

(A) an optimum allocation of resources is the final result of competition among participants
(B) those performing the studies choose an oversimplified description of the influences on competition
(C) such imbalances do not appear in the statistics usually compiled to measure the market's behavior
(D) the analysts who study the market are unwilling to accept criticism of their methods as biased
(E) socioeconomic differences form the basis of a rationing mechanism that puts minority groups at a disadvantage


278. The author’s main point is argued by

(A) giving examples that support a conventional generalization
(B) showing that the view opposite to the author’s is self-contradictory
(C) criticizing the presuppositions of a proposed plan
(D) showing that omissions in a theoretical description make it inapplicable in certain cases
(E) demonstrating that an alternative hypothesis more closely fits the data


279. A difference in which of the following would be an example of inequality in transaction costs as alluded to in lines 40-43 [Moreover, it is assumed that transaction costs for various types of financial instruments (stocks, bonds, etc.) are equally known and equally divided among all community members.]?

(A) Maximum amounts of loans extended by a bank to businesses in different areas
(B) Fees charged to large and small investors for purchasing stocks
(C) Prices of similar goods offered in large and small stores in an area
(D) Stipends paid to different attorneys for preparing legal suits for damages
(E) Exchange rates in dollars for currencies of different countries


280. Which of the following can be inferred about minority communities on the basis of the passage?

(A) They provide a significant portion of the funds that become available for investment in the financial market.
(B) They are penalized by the tax system, which increases the inequality of the distribution of income between investors and wage earners.
(C) They do no receive the share of the amount of funds available for investment that would be expected according to traditional financial-market analysis.
(D) They are not granted governmental subsidies to assist in underwriting the cost of economic development
(E) They provide the same access to alternative sources of credit to finance businesses as do majority communities.


281. According to the passage, a questionable assumption of the conventional theory about the operation of financial markets is that

(A) creditworthiness as determined by lenders is a factor determining market access
(B) market structure and market dynamics depend on income distribution
(C) a scarcity of alternative sources of funds would result from taking socioeconomic factors into consideration
(D) those who engage in financial-market transactions are perfectly well informed about the market
(E) inequalities in income distribution are increased by the functioning of the financial market


282. According to the passage, analysts have conventionally tended to view those who participate in financial markets as

(A) judging investment preferences in terms of the good of society as a whole
(B) influencing the allocation of funds through prior ownership of certain kinds of assets
(C) varying in market power with respect to one another
(D) basing judgments about future events mainly on chance
(E) having equal opportunities to engage in transactions



All correct. Dense to read but questions were not that confusing. I do have problem with some questions because the elimination was difficult.

278. The author’s main point is argued by

(A) giving examples that support a conventional generalization
(D) showing that omissions in a theoretical description make it inapplicable in certain cases

How to eliminate (A)?

280. Which of the following can be inferred about minority communities on the basis of the passage?

(C) They do no receive the share of the amount of funds available for investment that would be expected according to traditional financial-market analysis.
(D) They are not granted governmental subsidies to assist in underwriting the cost of economic development

How to eliminate (D)?
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New post 30 Nov 2017, 18:46
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mitaz0071 wrote:
Got most of the right . But it took me 18 minutes to complete. In a real exam, this needs to be done within 7 mins - am i right?

But you only have to answer 4 questions, not 7 like in this passage
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New post 24 Jan 2018, 20:18
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TaN1213 wrote:
MinHuiii wrote:
Can someone please help me the question 276 and 279 ?


The entire passage talks about the injustice happening to the minority communities. Look for an option that stresses on this point.

276. The main point made by the passage is that

(A) financial markets provide for an optimum allocation of resources among all competing participants by balancing supply and demand
Opposite of what author thinks. Financial markets are being criticized here for not treating the minorities fairly.

(B) the allocation of financial resources takes place among separate individual participants, each of whom has access to the market
passage excerpt : "it is assumed that each individual in the community at large has the same access to the market and the same opportunity to transact "

(C) the existence of certain factors adversely affecting members of minority groups shows that financial markets do not function as conventional theory says they function
Conventional theory supports the perfect model where everyone has equal access. But in reality the markets are not fair to the minorities, who do not have equal access. Correct

(D) investments in minority communities can be made by the use of various alternative financial instruments, such as stocks and bonds
out of scope
(E) since transaction costs for stocks, bonds, and other financial instruments are not equally apportioned among all minority-group members, the financial market is subject to criticism
This is consistent as per passage but only discussed in last paragraph. So, this can not be the main point of the entire passage.

Thanks TaN1213 for the explanation!

Referring to the third paragraph, we are told that most traditional financial-market analysis studies ignore financial markets’ deficiencies in allocation. The second paragraph provides an example of such allocation deficiencies (i.e. those affecting members of minority groups).

The third paragraph then describes assumptions made by the conventional (i.e. traditional) financial analysis. Because of these assumption, the conventional analysis FAILS to address certain allocation deficiencies. For example, the conventional analysis assumes that all individuals have perfect foresight about capital-market behavior, the same access to the market, and the same opportunity to transact and to express the preference appropriate to their individual interests. The conventional analysis also assumes that transaction costs for various types of financial instruments (stocks, bonds, etc.) are equally known and equally divided among all community members.

In making these assumptions, the conventional analysis ignores certain deficiencies in allocation. These deficiencies, as described in the second paragraph, are factors that adversely affect members of minority groups. If the conventional analysis were accurate, the deficiencies described and the adverse effect on minority communities would not be present. However, the deficiencies DO exist, showing that financial markets do not function as conventional theory says they function.

TaN1213 wrote:
dave13 wrote:
Hi everyone :)

Can anyone shed some light on the question below. I could not answer the question correctly cause i simply couldnt find key information :-) So why B ? thank you! :)

279. A difference in which of the following would be an example of inequality in transaction costs as alluded to in lines 40-43 [Moreover, it is assumed that transaction costs for various types of financial instruments (stocks, bonds, etc.) are equally known and equally divided among all community members.]?

(A) Maximum amounts of loans extended by a bank to businesses in different areas
(B) Fees charged to large and small investors for purchasing stocks
(C) Prices of similar goods offered in large and small stores in an area
(D) Stipends paid to different attorneys for preparing legal suits for damages
(E) Exchange rates in dollars for currencies of different countries


The question explicitly mentions the key you need to look for - financial instruments (stocks, bonds)
Since the answer choice needs to be an example of inequality in stocks or bonds, B can not get easier to spot.
B rightly shows the inequality in large and small investors in terms of the fees charged while buying stocks.

Thanks again TaN1213! Notice that the question says, "A difference in which of the following..." If the fees charged to large and small investors were DIFFERENT, it would represent an inequality in transaction costs.

sambit66 wrote:
I am unable to understand q278. The author???s main point can be found in line 1st para :
The function of capital markets is to facilitate an exchange of funds among all participants, and yet in practice we find that certain participants are not on a par with others.

How is the Option (D) showing that omissions in a theoretical description make it inapplicable in certain cases related to author's main point. Please help.

The author's main point, as described in the explanation for 276, is that the existence of allocation deficiencies, such as those that adversely affect minority groups, shows that the conventional analysis is inaccurate. The conventional theory makes certain assumptions (as described in the third paragraph) and, as a result, FAILS to address certain allocation deficiencies. In other words, these allocation deficiencies are not accounted for in the conventional analysis (the conventional analysis IGNORES or OMITS these deficiencies). These omissions make the conventional theory inapplicable in cases where such deficiencies DO exist (i.e. in minority communities).

I hope that helps!
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New post 06 Nov 2018, 15:55
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Hello workout , bb , NaeemHasan or who ever has the OG10 or OG11 : At 2nd para ---- The existing system expresses definite socially based investment preferences that result from the previous allocation of income and that influence the allocation of resources for the present and future.

Is 'based' used in the actual book ? I am not sure why I am thinking 'biased' . - may be confused between the uses - 'society based' vs 'socially biased' !!
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New post 16 Apr 2019, 14:12
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Hi gmat8998

Interesting question. For this one, I might first summarize in my head what I think the argument is. Did you do this?

Here is my summary per paragraph: P1: Capital markets don't actually help everyone evenly. P2: Example of how capital markets are screwed up and unfair in US minority communities. P3: Most theoretical analysis of capital markets assumes a bunch of things that aren't true in reality.

OK. So what is the main theme?
My version: Capital markets don't actually work in reality the way they do/should do in theory.

But is there ever one sentence in the passage that says this main theme? NO. I had to summarize it across the main ideas of the three paragraphs.

So if we consider (A) giving examples that support a conventional generalization
Um, what conventional generalization would we be talking about? Remember, conventional means usual/typical/accepted/mainstream. But if there is any conventional generalization here, it would be that capital markets work in a certain (predictable/textbook) way, and our author is actually arguing AGAINST that, not to SUPPORT it.

So let's look at (D) showing that omissions in a theoretical description make it inapplicable in certain cases
Sounds good to me. The author shows that there are holes/gaps/missing parts in the theory that mean the theory actually cannot describe what is truly going on in certain cases - for example, in US minority communities.

Let me know how you were thinking and if this makes it clearer, please.
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New post 04 Sep 2019, 14:53
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devavrat wrote:
Hi,
in question 278 i marked option C
Can someone pls explain why option D is better than option C

Does the author criticize the presupposition of the proposed plan or does he show the omissions?

As I've explained here — including a full explanation for why we keep choice (D) — the author's main point in this passage is that a conventional view of market participation and the function of capital markets is inaccurate.

This question asks: How does the author argue this point?

Quote:
(C) criticizing the presuppositions of a proposed plan

If (C) were true, we'd expect to see the author identify a proposed plan and then criticize that plan's presuppositions.

However, there's no evidence of a "proposed plan" in this passage.

The author describes how traditional financial analysis ignores important issues and deficiencies. But traditional analysis and conventional wisdom are not the same as a "proposed plan."

Choice (C) doesn't match up with the passage, so we can eliminate it and move on.

I hope this helps!
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New post 11 Dec 2017, 07:37
ShashankDave wrote:
NaeemHasan wrote:
The Official Guide for GMAT Review, 10th Edition, 2003

Practice Question
Question No.: RC 276 ~ 282
Page: 412

The function of capital markets is to facilitate an exchange of funds among all participants, and yet in practice we find that certain participants are not on a par with others. Members of society have varying degrees of market strength in terms of information they bring to a transaction, as well as of purchasing power and creditworthiness, as defined by lenders.

For example, within minority communities, capital markets do not properly fulfill their functions; they do not provide access to the aggregate flow of funds in the United States. The financial system does not generate the credit or investment vehicles needed for underwriting economic development in minority areas. The problem underlying this dysfunction is found in a rationing mechanism affecting both the available alternatives for investment and the amount of financial resources. This creates a distributive mechanism penalizing members of minority groups because of their socioeconomic differences from others. The existing system expresses definite socially based investment preferences that result from the previous allocation of income and that influence the allocation of resources for the present and future. The system tends to increase the inequality of income distribution. And, in the United States economy, a greater inequality of income distribution leads to a greater concentration of capital in certain types of investment.

Most traditional financial-market analysis studies ignore financial markets’ deficiencies in allocation because of analysts’ inherent preferences for the simple model of perfect competition. Conventional financial analysis pays limited attention to issues of market structure and dynamics, relative costs of information, and problems of income distribution. Market participants are viewed as acting as entirely independent and homogeneous individuals with perfect foresight about capital-market behavior. Also, it is assumed that each individual in the community at large has the same access to the market and the same opportunity to transact and to express the preference appropriate to his or her individual interest. Moreover, it is assumed that transaction costs for various types of financial instruments (stocks, bonds, etc.) are equally known and equally divided among all community members.
276. The main point made by the passage is that

(A) financial markets provide for an optimum allocation of resources among all competing participants by balancing supply and demand
(B) the allocation of financial resources takes place among separate individual participants, each of whom has access to the market
(C) the existence of certain factors adversely affecting members of minority groups shows that financial markets do not function as conventional theory says they function
(D) investments in minority communities can be made by the use of various alternative financial instruments, such as stocks and bonds
(E) since transaction costs for stocks, bonds, and other financial instruments are not equally apportioned among all minority-group members, the financial market is subject to criticism


277. The passage states that traditional studies of the financial market overlook imbalances in the allocation of financial resources because

(A) an optimum allocation of resources is the final result of competition among participants
(B) those performing the studies choose an oversimplified description of the influences on competition
(C) such imbalances do not appear in the statistics usually compiled to measure the market's behavior
(D) the analysts who study the market are unwilling to accept criticism of their methods as biased
(E) socioeconomic differences form the basis of a rationing mechanism that puts minority groups at a disadvantage


278. The author’s main point is argued by

(A) giving examples that support a conventional generalization
(B) showing that the view opposite to the author’s is self-contradictory
(C) criticizing the presuppositions of a proposed plan
(D) showing that omissions in a theoretical description make it inapplicable in certain cases
(E) demonstrating that an alternative hypothesis more closely fits the data


279. A difference in which of the following would be an example of inequality in transaction costs as alluded to in lines 40-43 [Moreover, it is assumed that transaction costs for various types of financial instruments (stocks, bonds, etc.) are equally known and equally divided among all community members.]?

(A) Maximum amounts of loans extended by a bank to businesses in different areas
(B) Fees charged to large and small investors for purchasing stocks
(C) Prices of similar goods offered in large and small stores in an area
(D) Stipends paid to different attorneys for preparing legal suits for damages
(E) Exchange rates in dollars for currencies of different countries


280. Which of the following can be inferred about minority communities on the basis of the passage?

(A) They provide a significant portion of the funds that become available for investment in the financial market.
(B) They are penalized by the tax system, which increases the inequality of the distribution of income between investors and wage earners.
(C) They do no receive the share of the amount of funds available for investment that would be expected according to traditional financial-market analysis.
(D) They are not granted governmental subsidies to assist in underwriting the cost of economic development
(E) They provide the same access to alternative sources of credit to finance businesses as do majority communities.


281. According to the passage, a questionable assumption of the conventional theory about the operation of financial markets is that

(A) creditworthiness as determined by lenders is a factor determining market access
(B) market structure and market dynamics depend on income distribution
(C) a scarcity of alternative sources of funds would result from taking socioeconomic factors into consideration
(D) those who engage in financial-market transactions are perfectly well informed about the market
(E) inequalities in income distribution are increased by the functioning of the financial market


282. According to the passage, analysts have conventionally tended to view those who participate in financial markets as

(A) judging investment preferences in terms of the good of society as a whole
(B) influencing the allocation of funds through prior ownership of certain kinds of assets
(C) varying in market power with respect to one another
(D) basing judgments about future events mainly on chance
(E) having equal opportunities to engage in transactions



All correct. Dense to read but questions were not that confusing. I do have problem with some questions because the elimination was difficult.

in Q278,HOW TO ELIMINATE C.
C :SPEAKS ABOUT PROPOSED PLAN
D:SPEAKS ABOUT A THEORETICAL DESCRIPTION
IS THIS WHY WE CAN ELIMINATE C,AS THERE IS NO PROPOSED PLAN?
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New post 15 Jan 2018, 10:19
NaeemHasan wrote:
The Official Guide for GMAT Review, 10th Edition, 2003

Practice Question
Question No.: RC 276 ~ 282
Page: 412

The function of capital markets is to facilitate an exchange of funds among all participants, and yet in practice we find that certain participants are not on a par with others. Members of society have varying degrees of market strength in terms of information they bring to a transaction, as well as of purchasing power and creditworthiness, as defined by lenders.

For example, within minority communities, capital markets do not properly fulfill their functions; they do not provide access to the aggregate flow of funds in the United States. The financial system does not generate the credit or investment vehicles needed for underwriting economic development in minority areas. The problem underlying this dysfunction is found in a rationing mechanism affecting both the available alternatives for investment and the amount of financial resources. This creates a distributive mechanism penalizing members of minority groups because of their socioeconomic differences from others. The existing system expresses definite socially based investment preferences that result from the previous allocation of income and that influence the allocation of resources for the present and future. The system tends to increase the inequality of income distribution. And, in the United States economy, a greater inequality of income distribution leads to a greater concentration of capital in certain types of investment.

Most traditional financial-market analysis studies ignore financial markets’ deficiencies in allocation because of analysts’ inherent preferences for the simple model of perfect competition. Conventional financial analysis pays limited attention to issues of market structure and dynamics, relative costs of information, and problems of income distribution. Market participants are viewed as acting as entirely independent and homogeneous individuals with perfect foresight about capital-market behavior. Also, it is assumed that each individual in the community at large has the same access to the market and the same opportunity to transact and to express the preference appropriate to his or her individual interest. Moreover, it is assumed that transaction costs for various types of financial instruments (stocks, bonds, etc.) are equally known and equally divided among all community members.
276. The main point made by the passage is that

(A) financial markets provide for an optimum allocation of resources among all competing participants by balancing supply and demand
(B) the allocation of financial resources takes place among separate individual participants, each of whom has access to the market
(C) the existence of certain factors adversely affecting members of minority groups shows that financial markets do not function as conventional theory says they function
(D) investments in minority communities can be made by the use of various alternative financial instruments, such as stocks and bonds
(E) since transaction costs for stocks, bonds, and other financial instruments are not equally apportioned among all minority-group members, the financial market is subject to criticism


277. The passage states that traditional studies of the financial market overlook imbalances in the allocation of financial resources because

(A) an optimum allocation of resources is the final result of competition among participants
(B) those performing the studies choose an oversimplified description of the influences on competition
(C) such imbalances do not appear in the statistics usually compiled to measure the market's behavior
(D) the analysts who study the market are unwilling to accept criticism of their methods as biased
(E) socioeconomic differences form the basis of a rationing mechanism that puts minority groups at a disadvantage


278. The author’s main point is argued by

(A) giving examples that support a conventional generalization
(B) showing that the view opposite to the author’s is self-contradictory
(C) criticizing the presuppositions of a proposed plan
(D) showing that omissions in a theoretical description make it inapplicable in certain cases
(E) demonstrating that an alternative hypothesis more closely fits the data


279. A difference in which of the following would be an example of inequality in transaction costs as alluded to in lines 40-43 [Moreover, it is assumed that transaction costs for various types of financial instruments (stocks, bonds, etc.) are equally known and equally divided among all community members.]?

(A) Maximum amounts of loans extended by a bank to businesses in different areas
(B) Fees charged to large and small investors for purchasing stocks
(C) Prices of similar goods offered in large and small stores in an area
(D) Stipends paid to different attorneys for preparing legal suits for damages
(E) Exchange rates in dollars for currencies of different countries


280. Which of the following can be inferred about minority communities on the basis of the passage?

(A) They provide a significant portion of the funds that become available for investment in the financial market.
(B) They are penalized by the tax system, which increases the inequality of the distribution of income between investors and wage earners.
(C) They do no receive the share of the amount of funds available for investment that would be expected according to traditional financial-market analysis.
(D) They are not granted governmental subsidies to assist in underwriting the cost of economic development
(E) They provide the same access to alternative sources of credit to finance businesses as do majority communities.


281. According to the passage, a questionable assumption of the conventional theory about the operation of financial markets is that

(A) creditworthiness as determined by lenders is a factor determining market access
(B) market structure and market dynamics depend on income distribution
(C) a scarcity of alternative sources of funds would result from taking socioeconomic factors into consideration
(D) those who engage in financial-market transactions are perfectly well informed about the market
(E) inequalities in income distribution are increased by the functioning of the financial market


282. According to the passage, analysts have conventionally tended to view those who participate in financial markets as

(A) judging investment preferences in terms of the good of society as a whole
(B) influencing the allocation of funds through prior ownership of certain kinds of assets
(C) varying in market power with respect to one another
(D) basing judgments about future events mainly on chance
(E) having equal opportunities to engage in transactions




Hi everyone :)

Can anyone shed some light on the question below. I could not answer the question correctly cause i simply couldnt find key information :-) So why B ? thank you! :)

279. A difference in which of the following would be an example of inequality in transaction costs as alluded to in lines 40-43 [Moreover, it is assumed that transaction costs for various types of financial instruments (stocks, bonds, etc.) are equally known and equally divided among all community members.]?

(A) Maximum amounts of loans extended by a bank to businesses in different areas
(B) Fees charged to large and small investors for purchasing stocks
(C) Prices of similar goods offered in large and small stores in an area
(D) Stipends paid to different attorneys for preparing legal suits for damages
(E) Exchange rates in dollars for currencies of different countries
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New post 15 Jan 2018, 11:59
6 on 7 completed in 7:34, a pretty nice result, isn't it? :-)

277. The passage states that traditional studies of the financial market overlook imbalances in the allocation of financial resources because

(A) an optimum allocation of resources is the final result of competition among participants
(B) those performing the studies choose an oversimplified description of the influences on competition
(C) such imbalances do not appear in the statistics usually compiled to measure the market's behavior
(D) the analysts who study the market are unwilling to accept criticism of their methods as biased
(E) socioeconomic differences form the basis of a rationing mechanism that puts minority groups at a disadvantage

Here I selected E instead of B because the passage states: And, in the United States economy, a greater inequality of income distribution leads to a greater concentration of capital in certain types of investment.
But I agree that the choice B is more concise and correct :-)
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New post 17 Jan 2018, 11:39
dave13 wrote:
Hi everyone :)

Can anyone shed some light on the question below. I could not answer the question correctly cause i simply couldnt find key information :-) So why B ? thank you! :)

279. A difference in which of the following would be an example of inequality in transaction costs as alluded to in lines 40-43 [Moreover, it is assumed that transaction costs for various types of financial instruments (stocks, bonds, etc.) are equally known and equally divided among all community members.]?

(A) Maximum amounts of loans extended by a bank to businesses in different areas
(B) Fees charged to large and small investors for purchasing stocks
(C) Prices of similar goods offered in large and small stores in an area
(D) Stipends paid to different attorneys for preparing legal suits for damages
(E) Exchange rates in dollars for currencies of different countries


The question explicitly mentions the key you need to look for - financial instruments (stocks, bonds)
Since the answer choice needs to be an example of inequality in stocks or bonds, B can not get easier to spot.
B rightly shows the inequality in large and small investors in terms of the fees charged while buying stocks.
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New post 17 Jan 2018, 19:36
TaN1213 wrote:
MinHuiii wrote:
Can someone please help me the question 276 and 279 ?


The entire passage talks about the injustice happening to the minority communities. Look for an option that stresses on this point.

276. The main point made by the passage is that

(A) financial markets provide for an optimum allocation of resources among all competing participants by balancing supply and demand
Opposite of what author thinks. Financial markets are being criticized here for not treating the minorities fairly.

(B) the allocation of financial resources takes place among separate individual participants, each of whom has access to the market
passage excerpt : "it is assumed that each individual in the community at large has the same access to the market and the same opportunity to transact "

(C) the existence of certain factors adversely affecting members of minority groups shows that financial markets do not function as conventional theory says they function
Conventional theory supports the perfect model where everyone has equal access. But in reality the markets are not fair to the minorities, who do not have equal access. Correct

(D) investments in minority communities can be made by the use of various alternative financial instruments, such as stocks and bonds
out of scope
(E) since transaction costs for stocks, bonds, and other financial instruments are not equally apportioned among all minority-group members, the financial market is subject to criticism
This is consistent as per passage but only discussed in last paragraph. So, this can not be the main point of the entire passage.


Thank you
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New post 17 Jan 2018, 22:14
I am unable to understand q278. The author???s main point can be found in line 1st para :
The function of capital markets is to facilitate an exchange of funds among all participants, and yet in practice we find that certain participants are not on a par with others.

How is the Option (D) showing that omissions in a theoretical description make it inapplicable in certain cases related to author's main point. Please help.
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New post 24 Jan 2018, 09:58
I still cannot figure out this question. someone helps me~
279. A difference in which of the following would be an example of inequality in transaction costs as alluded to in lines 40-43 [Moreover, it is assumed that transaction costs for various types of financial instruments (stocks, bonds, etc.) are equally known and equally divided among all community members.]?

(A) Maximum amounts of loans extended by a bank to businesses in different areas
(B) Fees charged to large and small investors for purchasing stocks
(C) Prices of similar goods offered in large and small stores in an area
(D) Stipends paid to different attorneys for preparing legal suits for damages
(E) Exchange rates in dollars for currencies of different countrie
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New post 15 May 2018, 08:03
8 mins 30s got 1 wrong.
278. The author’s main point is argued by

(A) giving examples that support a conventional generalization
(B) showing that the view opposite to the author’s is self-contradictory
(C) criticizing the presuppositions of a proposed plan
(D) showing that omissions in a theoretical description make it inapplicable in certain cases
(E) demonstrating that an alternative hypothesis more closely fits the data


chose A. can someone explain why is it D ?
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New post 02 Jun 2018, 10:12
GMATNinja

Hi GMATNinja, could you please explain 278? I chose B but the answer is D.

For B, "The function of capital markets is to facilitate an exchange of funds among all participants, and yet in practice we find that certain participants are not on a par with others." this sentence indicates that the view opposite to the author's is self-contradictory. Doesn't it?

And I don't understand why D is correct. What is the intended "theoretical description"? And what are those "certain cases"?

Very appreciated!
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New post 01 Jul 2018, 22:37
GMATNinja mikemcgarry

278. The author’s main point is argued by

(A) giving examples that support a conventional generalization
(B) showing that the view opposite to the author’s is self-contradictory
(C) criticizing the presuppositions of a proposed plan
(D) showing that omissions in a theoretical description make it inapplicable in certain cases
(E) demonstrating that an alternative hypothesis more closely fits the data


I marked the answer C.
Isn't the author criticizing the presuppositions of a proposed plan??
The last paragraph says that a lot of assumptions are made by financial market studies and the author is clearly criticizing these assumptions.

Could you please help.
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