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V01-26, V01-27, V01-28

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V01-26, V01-27, V01-28 [#permalink]

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Microlending as a form of foreign aid first became popular in the 1970s as a way to bypass bureaucracy and administration costs that frequently, though unintentionally, prevented money from reaching individuals and families in struggling countries. In contrast to traditional lending, which tenders large sums to lendees who have strong credit histories and steady employment, microloans are generally made for less than $1,000 and are available without collateral to individuals with questionable credit histories who may or may not be employed. The central qualification for approving a microloan recipient is that the individual have a clearly defined plan for a small business, whether that be a bakery, dairy, tailor shop, or retail store. Recipients are bound to use profits from their business to repay the loan, and lenders since the inception of microloan programs have reported surprisingly high returns on their investment: up to 96% of microloans are repaid on time.

Though there are several administrative options for microloan programs, one of the earliest has remained the most common. According to this approach, a branch of an established bank or a bank specially formed to issue microloans will locate in an area of need and begin issuing loans to local entrepreneurs. In the early years of microloan programs, banks frequently set up village committees, composed of financial advisors and bank staff, to host weekly progress meetings. This proved a difficult administrative strategy to maintain, however, when villagers began to default on their loans just to avoid the meetings and what they often perceived as interference in their businesses. Though most banks quickly revised this approach when they realized its negative potential, the trust vacuum created when they could not offer a return to investors led many banks to seek other forms of administration.
1. According to the passage, which of the following best describes the contrast in qualifications between traditional lending and microloans?

(a) Recipients of traditional loans must complete a rigorous evaluation process, whereas recipients of microloans need only suggest an idea.
(b) Traditional lending qualifies candidates who are already financially independent, whereas microlending prioritizes potential.
(c) Recipients of microloans must prove the viability of small businesses, while traditional loan recipients are responsible for predicting the success of corporations.
(d) Traditional lending is structured so that the lender receives the bulk of the benefit, whereas microlending benefits the recipient.
(e) Microloans are made to qualified individuals who plan to start a business, whereas traditional loans are made to businesses already in operation.
[Reveal] Spoiler:
B


2. It can be inferred from the passage that the author makes which of the following assumptions about traditional lending in the form of foreign aid?

(a) Traditional lenders are more interested in earning profit than in giving assistance.
(b) Leaders of struggling countries are dissatisfied with the approach of traditional lending.
(c) Traditional lending is not flexible enough to loan amounts less than $1,000.
(d) A complicated administration process often limited the money available to individuals and families.
(e) Traditional lending is outdated and will eventually be replaced by microloan programs.
[Reveal] Spoiler:
D


3. The author suggests that the rise of the “other forms of administration” mentioned in the bolded text was due primarily to

(a) input from villagers gained during weekly progress meetings.
(b) disappointment in the ability of the village committee approach to insure repayment of loans.
(c) a desire to provide villagers with more direct feedback than that available during weekly progress meetings.
(d) the perception that weekly progress meetings were interfering in the businesses of villagers.
(e) the development of trust between villagers and bank staff, making weekly progress meetings unnecessary.
[Reveal] Spoiler:
B


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New post 16 Sep 2014, 01:55
[Reveal] Spoiler: Question V01-26 explanation
The information needed to answer this question can be found in these lines. According to the author, traditional lending is available to those who have strong credit histories and steady employment, or, in other words, are financially independent. These qualifications do not hold for recipients of microloans, however, who usually have questionable credit histories and are not necessarily employed. These recipients qualify for loan funds by presenting a clearly defined business plan that testifies to their potential.
  1. The application processes for each type of loan are not detailed in the passage.
  2. According to the passage, traditional loans are made to recipients with strong credit histories and steady employment, whereas recipients of microloans qualify for funding on the basis of a clearly defined business plan.
  3. A contrast between small businesses and corporations is not made in the passage.
  4. This answer choice actually addresses the benefits, not the qualifications, of each type of lending.
  5. The passage does not state that recipients of traditional loans must own a business.
[Reveal] Spoiler: Question V01-27 explanation
To answer this question correctly, it is necessary to make an inference. Traditional lending is discussed in the first paragraph, and it is here that the author claims that, when it came to foreign aid, bureaucracy and administration costs frequently…prevented money from reaching individuals and families in struggling countries. Given this statement, it is reasonable to assume that the author believes that administration costs and protocols often limit the amount of actual aid that reaches individuals.
  1. The passage does not directly discuss whether traditional lenders are interested in earning profit, and so this assumption can not underlie the discussion of foreign aid.
  2. Opinions of leaders of struggling countries are not discussed in the passage.
  3. It is stated in the passage that microloan amounts are often less than $1,000, but the relative flexibility of traditional lending is not discussed.
  4. The first sentence of the passage identifies this as the very problem that led to the creation of microloan programs.
  5. The passage neither discusses relevance of traditional lending, nor speculates that one form of lending will eventually replace another.
[Reveal] Spoiler: Question V01-28 explanation
Because a specific line is referenced in the question stem, it is clear that the correct answer to this question depends on an appropriate understanding of supporting details. First, review for context. The passage describes a situation in which villagers reacted negatively to the weekly progress meetings required by the banks who issued their loans. This reaction led to a climb in the default rate for the loans and, in turn, caused confidence in the banks to plummet. The other forms of administration sought to regain the trust of investors caused by the failure of the village committee approach.
  1. According to the passage, villagers did not give input about the administration of their loans.
  2. The committee approach was intended to secure repayment of the loans, but, because many villagers felt the banks were interfering with their business, they defaulted on their loans. This led many banks to seek other forms of administration in order to regain the trust of investors.
  3. Actually, the villagers considered that the banks were interfering in their businesses and demanded less direct feedback.
  4. This was the perception of the villagers, not the banks who sought other forms of administration.
  5. The passage does not state that trust developed between villagers and bank staff.

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V01-26, V01-27, V01-28 [#permalink]

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New post 05 Nov 2014, 01:03
Question V01-26 :

The option E is striked out saying that "The passage does not state that recipients of traditional loans must own a business."

However, The Passage does say that "traditional lending tenders large sums to lendees who have strong credit histories and steady employment"

Individuals don't employ . Businesses employ. SO it is reasonable to infer that traditional lending is given to Businesses.


Option B says "Traditional lending qualifies candidates who are already financially independent"..... The passage just says that "Traditional lending is given to lendees with strong credit histories " ... Having strong credit history is not same as being financially independent. May be those lendees depend on Investments from other sources on which they depend. Financial Independence is very much different from having strong credit history.

SO, Just as option E is striked out saying that "The passage does not state that recipients of traditional loans must own a business."
Option B can also be striked out saying that, "The passage does not state that lendees of traditional loans are Financially Independent."

But overall, Choice E definitely makes more sense than B

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New post 24 Sep 2015, 06:41
I think this is a high-quality question and I agree with explanation.

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New post 28 May 2016, 05:24
V01-28
"The author suggests that the rise of the “other forms of administration” mentioned in the bolded text was due primarily to"

There is no bold text in the passage in the CAT-verbal, Bunuel: maybe can you take a look?

I am still not quite persuade by the explanation of this question: where on the question stem does it mention about bank's opinion not villager's response?

I mean: villager felt that meeting interfered with their business --> no use --> not joining --> default loan --> ineffective method --> need other forms

So does the real reason should come from:

(d) the perception that weekly progress meetings were interfering in the businesses of villagers.

right?
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Linhbiz wrote:
V01-28
"The author suggests that the rise of the “other forms of administration” mentioned in the bolded text was due primarily to"

There is no bold text in the passage in the CAT-verbal, Bunuel: maybe can you take a look?

I am still not quite persuade by the explanation of this question: where on the question stem does it mention about bank's opinion not villager's response?

I mean: villager felt that meeting interfered with their business --> no use --> not joining --> default loan --> ineffective method --> need other forms

So does the real reason should come from:

(d) the perception that weekly progress meetings were interfering in the businesses of villagers.

right?


Option D, "The perception that weekly progress meetings were interfering in the businesses of villagers", led to a REVISION of the SAME approach ("most banks quickly revised this approach"), not to "OTHER forms of approach".

The last sentence states that "The trust vacuum (disappointment) created when they could not offer a return to investors ( repayment of loans) led many banks to seek OTHER forms of administration." Hence B is better than D.

The wording in the test section has been modified to clearly refer to the "last two sentences" of the passage.

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Re: V01-26, V01-27, V01-28 [#permalink]

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New post 31 May 2016, 09:49
sayantanc2k wrote:
Linhbiz wrote:
V01-28
"The author suggests that the rise of the “other forms of administration” mentioned in the bolded text was due primarily to"

There is no bold text in the passage in the CAT-verbal, Bunuel: maybe can you take a look?

I am still not quite persuade by the explanation of this question: where on the question stem does it mention about bank's opinion not villager's response?

I mean: villager felt that meeting interfered with their business --> no use --> not joining --> default loan --> ineffective method --> need other forms

So does the real reason should come from:

(d) the perception that weekly progress meetings were interfering in the businesses of villagers.

right?


Option D, "The perception that weekly progress meetings were interfering in the businesses of villagers", led to a REVISION of the SAME approach ("most banks quickly revised this approach"), not to "OTHER forms of approach".

The last sentence states that "The trust vacuum (disappointment) created when they could not offer a return to investors ( repayment of loans) led many banks to seek OTHER forms of administration." Hence B is better than D.

The wording in the test section has been modified to clearly refer to the "last two sentences" of the passage.


Thanks sayantanc2k for the explanation, it's clear now :)
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New post 01 Aug 2016, 18:38
For the first question, I chose A over B because if you are employed, you are not financially independent. You are financially independent when you do not have to work and your assets generate enough income to cover your expenses.

Also, "Rigorous evaluation process" - The explanation says the process is not detailed...but it is. It states you receive a credit and steady employment check. Further, a clearly defined business plan is still only an idea if it has not been tested in the market.

How can I distinguish between these nuances on the exam? I'm not trying to sound salty, I am just a little confused as to how I improve on verbal when these distinctions are a recurring theme in my incorrect questions.

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New post 01 Aug 2016, 20:55
SemperLiberi : very interesting point! I also need to read your explanation carefully in order to offer some of my thoughts as below:
Quote:
For the first question, I chose A over B because if you are employed, you are not financially independent. - not necessary true, may be OR may be not (depends on your second sentence, one may be employed and still generate enough income to cover expenses)

You are financially independent when you do not have to work and your assets generate enough income to cover your expenses. - absolutely correct!

Also, "Rigorous evaluation process" - The explanation says the process is not detailed...but it is. It states you receive a credit and steady employment check. Further, a clearly defined business plan is still only an idea if it has not been tested in the market. - also true :)

How can I distinguish between these nuances on the exam? I'm not trying to sound salty, I am just a little confused as to how I improve on verbal when these distinctions are a recurring theme in my incorrect questions.


After reading your post, I think you have heavy point to weight under option A vs. B as well. It's quite not clear which one is absolute win in this situation, for me it's a matter of over-all impression: since the financial independent concept that we know of today is quite new (as you defined) - the traditional way is still "you have a good job, you're ok with finance" - hence, the matter is in viewing the core different between the 2 approaches? Which is the main idea behind the micro lending? Is it the vigorous process? - probably not, because the term itself is very ambiguous - how vigorous is considered vigorous enough? Different banks will have different process so it's not a definite criterion to judge on.

Therefore, from my point of view the main contrast between 2 approaches (B) hits the target a little bit more closer than (A)

P/s: I faced with several nuances like this during my practice as well, so one of my method is to read the whole paragraph, try to see the author's tone and feel its general spirit, it's not an easy task to read other people's mind - but I can see my improvement over practices.
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New post 04 Oct 2016, 16:32
How someone with employment status (ie relaying on a salary) is financially independent? How can having a good credit rating means being financially independent? For instance, Apple who has a great credit rating, depends on the sale of Phones to pay the debt. Therefore, it is not financially independent. The answer is not clear enough...

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New post 07 Oct 2016, 05:58
danimombs wrote:
How someone with employment status (ie relaying on a salary) is financially independent? How can having a good credit rating means being financially independent? For instance, Apple who has a great credit rating, depends on the sale of Phones to pay the debt. Therefore, it is not financially independent. The answer is not clear enough...


It seems that you have a misunderstanding of the meaning of "financially independent". Financially dependent is someone who depends on someone else financially: My children are financially dependent on me. However since I have a permanent job I am not financially dependent on anybody - in other words I am financially independent.

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New post 03 Apr 2017, 21:46
Hi, expert.

About the first question, I really think Option E is the right answer.
Since the passage mentioned that "In contrast to traditional lending, which tenders large sums to lendees who have strong credit histories and steady employment", so doesn't that "strong employment" implies that the recipients of traditional loans have already owned businesses?

So, if this is the result, option E would definitely make more sense than option B, right?
Please unveil my doubt, thank you.

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New post 25 Oct 2017, 10:42
V01-26:

IMO Steady employment doesn't means business. I am not sure if a businessman would ever say that he has a steady employment. On the contrary he is employing candidates for his business.

Since, employment means salaried jobs... where you are employed as an employee and paid salary, IMO Steady employment means a (salaried) job where you expect to continue working. And, if someone has a steady employment, he is financially independent. B is correct. E is incorrect because it mentions "business already in operation" which is not indicated anywhere in the passage.

Last edited by chaudhurysr on 25 Oct 2017, 11:08, edited 1 time in total.

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Re: V01-26, V01-27, V01-28 [#permalink]

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New post 25 Oct 2017, 11:08
V01-27:

I tend to disagree with option D. OE says "The first sentence of the passage identifies this as the very problem that led to the creation of microloan programs". If the problem is already mentioned in the passage, then how can it be an assumption? As assumption has to be something that is NOT mentioned in the passage.

I chose C as the answer because the passage says "In contrast to traditional lending, which tenders large sums to lendees who have strong credit histories and steady employment, microloans are generally made for less than $1,000 and are available without collateral to individuals with questionable credit histories who may or may not be employed. "

The passage doesn't explicitly mentions that traditional lending is not flexible for loan amounts < $1000, but by mentioning that "microloans are generally made for less than $1,000 " and this is "In contrast to traditional lending", it is fair to assume that traditional lending isn't flexible enough for amount < $1000.

Experts, please clarify!!

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Re: V01-26, V01-27, V01-28   [#permalink] 25 Oct 2017, 11:08
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