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17 Aug 2015, 09:28
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45% (medium)

Question Stats:

63% (01:08) correct 38% (01:15) wrong based on 72 sessions

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The currency of Country A has been strengthening against other worldwide currencies for the past year, and economists have observed that the worldwide demand for products manufactured in Country A has been rapidly growing. Thus, the economists reason that Country A’s currency is strengthening because of classic supply and demand factors.

Which of the following is an assumption made by the economists in reaching their conclusion?

A. It is not difficult to ship products made in Country A to other countries
B. Country A has lower manufacturing costs than other markets
C. The demand for products manufactured in Country A will continue to increase
D. Country A has a regulatory system that ensures its manufactured products meet high quality standards
E. Manufacturing companies in Country A receive payment in Country A’s local currency

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17 Aug 2015, 09:28
Official Solution:

The currency of Country A has been strengthening against other worldwide currencies for the past year, and economists have observed that the worldwide demand for products manufactured in Country A has been rapidly growing. Thus, the economists reason that Country A’s currency is strengthening because of classic supply and demand factors.

Which of the following is an assumption made by the economists in reaching their conclusion?

A. It is not difficult to ship products made in Country A to other countries
B. Country A has lower manufacturing costs than other markets
C. The demand for products manufactured in Country A will continue to increase
D. Country A has a regulatory system that ensures its manufactured products meet high quality standards
E. Manufacturing companies in Country A receive payment in Country A’s local currency

(A) The difficulty of shipping products from Country A to other countries is irrelevant.

(B) This is not an assumption made the economists.

(C) The passage does not state that the current economic conditions will continue.

(D) The regulatory system of Country A is irrelevant.

(E) Correct. If manufacturers in Country A require payment in local currency, then demand for that currency from foreign buyers must increase. This helps to logically support the economists’ conclusion.

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Updated on: 25 Oct 2016, 10:56
Hi bb, thanks for the question. The question demands prior knowledge of how the trade and currency valuation are related.

I took a different approach of understanding that 'demand and supply has led to increase in the currency value' and 'the international demand has been high' is explicitly given as a premise. So the assumption could only be that Country A has been able to successfully supply to the demand. So anything related to the ease of supply could be considered. Hence chose A. . Probably A is irrelevant because if we negate the statement, i.e., If shipping is difficult, still supply could be made through difficult routes.

Also, 'the classic demand and supply' seems to refer to demand and supply of products manufactured in the country and not the currency. Payment made in any currency would increase the country's reserves to strengthens its currency. Pls correct me if I m wrong.

Originally posted by Sneha Jaiswal on 25 Oct 2016, 06:32.
Last edited by Sneha Jaiswal on 25 Oct 2016, 10:56, edited 1 time in total.
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25 Oct 2016, 10:00
Sneha Jaiswal wrote:
Hi bb, thank for the question. The question demands prior knowledge of how the trade and currency valuation are related.

I took a different approach of understanding that 'demand and supply has led to increase in the currency value' and 'the international demand has been high' is explicitly given as a premise. So the assumption could only be that Country A has been able to successfully supply to the demand. So anything related to the ease of supply could be considered. Hence chose A. . Probably A is irrelevant because if we negate the statement, i.e., If shipping is difficult, still supply could be made through difficult routes.

Also, 'the classic demand and supply' seems to refer to demand and supply of products manufactured in the country and not the currency. Payment made in any currency would increase the country's reserves to strengthens its currency. Pls correct me if I m wrong.

Hi sneha

I had the same query as yours when i first attempted this question. Moreover, me too was on the verge of dropping a post on similar lines.
It seems you joined gmatclub recently and i assume that you are in the preliminary stage of preperation.
So a small piece of advice.
In the question above,

The currency of Country A has been strengthening against other worldwide currencies for the past year, - the question specifically starts by discussing about currency of country A. You may call this a premise or Intermediate conclusion.

and economists have observed that the worldwide demand for products manufactured in Country A has been rapidly growing. - a premise aka additional information.

Thus, the economists reason that Country A’s currency is strengthening because of classic supply and demand factors. - the conclusion.

Also keep the main conclusion's aim in the back of the mind when reading thru the choices.
The whole argument is revolving around country's A Currency. So keep a eye open for any option which refers to the same.
You shall find this beneficial especially in the sub-600 and 600-700 range of questions.

Hope its clear.

Now the reason i underlined intermediate conclusion, consider the following argument -

"Economists have observed that the worldwide demand for products manufactured in Country A has been rapidly growing. They reason that Country A’s currency is strengthening because of classic supply and demand factors. Thus it can be concluded that the currency of Country A has been strengthening against other worldwide currencies for the past year."

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25 Oct 2016, 11:19
Hi Nightfury,
Thanks for the reply. Its quite funny but I have my GMAT in 1 week.

Regarding the question, I wouldnt categorise the 1st statement (The currency of Country A has been strengthening against other worldwide currencies for the past year, ) as an intermediate conclusion but as a fact or evidence (which cannot be disputed). ICs by the author can be disputed.

I get your point of looking for main subject in the choices but the correct answer choice here says that payment in the same currency creates demand for the currency and hence brings in more currency. This increase in currency in the country is again assumed to strengthen the currency against other currencies. Isnt this possible even if the payment is in any other currency. I am sorry it might be silly but I am quite unaware of all this. Kindly explain.

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25 Oct 2016, 11:38
Sneha Jaiswal wrote:
Hi Nightfury,
Thanks for the reply. Its quite funny but I have my GMAT in 1 week.

Regarding the question, I wouldnt categorise the 1st statement (The currency of Country A has been strengthening against other worldwide currencies for the past year, ) as an intermediate conclusion but as a fact or evidence (which cannot be disputed). ICs by the author can be disputed.

I get your point of looking for main subject in the choices but the correct answer choice here says that payment in the same currency creates demand for the currency and hence brings in more currency. This increase in currency in the country is again assumed to strengthen the currency against other currencies. Isnt this possible even if the payment is in any other currency. I am sorry it might be silly but I am quite unaware of all this. Kindly explain.

Nightfury14 wrote:
Sneha Jaiswal wrote:
Hi bb, thank for the question. The question demands prior knowledge of how the trade and currency valuation are related.

I took a different approach of understanding that 'demand and supply has led to increase in the currency value' and 'the international demand has been high' is explicitly given as a premise. So the assumption could only be that Country A has been able to successfully supply to the demand. So anything related to the ease of supply could be considered. Hence chose A. . Probably A is irrelevant because if we negate the statement, i.e., If shipping is difficult, still supply could be made through difficult routes.

Also, 'the classic demand and supply' seems to refer to demand and supply of products manufactured in the country and not the currency. Payment made in any currency would increase the country's reserves to strengthens its currency. Pls correct me if I m wrong.

Hi sneha

I had the same query as yours when i first attempted this question. Moreover, me too was on the verge of dropping a post on similar lines.
It seems you joined gmatclub recently and i assume that you are in the preliminary stage of preperation.
So a small piece of advice.
In the question above,

The currency of Country A has been strengthening against other worldwide currencies for the past year, - the question specifically starts by discussing about currency of country A. You may call this a premise or Intermediate conclusion.

and economists have observed that the worldwide demand for products manufactured in Country A has been rapidly growing. - a premise aka additional information.

Thus, the economists reason that Country A’s currency is strengthening because of classic supply and demand factors. - the conclusion.

Also keep the main conclusion's aim in the back of the mind when reading thru the choices.
The whole argument is revolving around country's A Currency. So keep a eye open for any option which refers to the same.
You shall find this beneficial especially in the sub-600 and 600-700 range of questions.

Hope its clear.

Now the reason i underlined intermediate conclusion, consider the following argument -

"Economists have observed that the worldwide demand for products manufactured in Country A has been rapidly growing. They reason that Country A’s currency is strengthening because of classic supply and demand factors. Thus it can be concluded that the currency of Country A has been strengthening against other worldwide currencies for the past year."

The jump from demand of a currency going high to currency getting stronger needs some outside knowledge. We are withdrawing this question for further review.
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26 Oct 2016, 20:39
Thank you for bringing this up to our attention. We have evaluated this question and though there are some arguments about currency supply demand being a more technical/economics related concept, it is still falling under the basic principle of supply and demand - the greater the demand, the higher the price. At this time we will keep this question in the active database.

Best Regards
BB
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Joined: 14 Dec 2013
Posts: 2900
Location: Germany
Schools: German MBA
GMAT 1: 780 Q50 V47
WE: Corporate Finance (Pharmaceuticals and Biotech)

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28 Oct 2016, 07:34
1
bb wrote:
Thank you for bringing this up to our attention. We have evaluated this question and though there are some arguments about currency supply demand being a more technical/economics related concept, it is still falling under the basic principle of supply and demand - the greater the demand, the higher the price. At this time we will keep this question in the active database.

Best Regards
BB

Sneha Jaiswal wrote:
Hi Nightfury,
Thanks for the reply. Its quite funny but I have my GMAT in 1 week.

Regarding the question, I wouldnt categorise the 1st statement (The currency of Country A has been strengthening against other worldwide currencies for the past year, ) as an intermediate conclusion but as a fact or evidence (which cannot be disputed). ICs by the author can be disputed.

I get your point of looking for main subject in the choices but the correct answer choice here says that payment in the same currency creates demand for the currency and hence brings in more currency. This increase in currency in the country is again assumed to strengthen the currency against other currencies. Isnt this possible even if the payment is in any other currency. I am sorry it might be silly but I am quite unaware of all this. Kindly explain.

Sneha Jaiswal

After our internal discussions, it was agreed by our team (including myself, on second thoughts) that the law of supply and demand is a basic concept that a business school aspirant is expected to understand.

So, in response to your query, following is the explanation:
If the medium of purchase for country A's goods is the the currency of country A, then more the purchase, more is the currency required in the world market. In other words, more of country A's currency is required in the world market and hence the demand of country A'S currency would be increasing in the world market. As per supply and demand law, higher the demand, higher is the price. So the price of the currency of country A would go high. In other words more currency in other country's terms is required to buy country A's currency - i.e., country A's currency is strengthened.
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15 Aug 2017, 19:56
Hi All,

Please take my understanding into consideration -

Like if i think " it's a cause and effect scenario " . Here because of classic supply and demand factors led to strengthening Country A's Currency " so here we can pretty well assume that
1. Nothing apart from Supply and demand led to strengthening of Country A's Currency ( Assuming because of cause and effect relation)

why I am doubting option " E" is that some other reason apart from "Supply and demand" has led to increase in strengthening of Country A's Currency . please explain on the lines of my understanding ??

Thanks
Amit
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05 Oct 2018, 07:26
This question is a compare type assumption qn

understand carefully

step-1 conclusion is non other than supply chain relation caused this hike in country-a's value.
step-2falsify the statement,that is"no no something other than S&C caused it."
step-3The problem is ,its easy to say something else caused,but what exactly caused is the actual talent to find assumption.so ask your self that what other thing is given as a clue,such as country-A currency,supply chain ,and the third one is other country's currency and its value.
step-4always try to find something new out of the box using a clue that the author is trying to avoid you to find,i:e other country currency value.and that is your game changer.
step-5now also you wont find the flasification statement is such kind of qn ,bit tricky,unless you are spending lots of time or cheating to gain something as revert.straight go the answer choice and fing which answer choice deals with the other currency .
step-6option-e tells you something related to the demand of supplier of country-A's currency.so now its time for you after getting confused in all the above options to think that is thier something going to happen with this statement.the answer will be yes ,obvious answer is you have to pay money in thier currency mode ,so alternatively your currency value will get down with increasing demand of country-A'S product.
step-7now you negate the statement ,you will find that the conclusion will not hold true.

hope it may take long time ,but is the best remedy for any kind of assumption qn.but we need to apply it correctly.
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