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30 May 2019, 00:40
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C
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
25%
(medium)
Question Stats:
78% (02:18) correct
22%
(02:41)
wrong
based on 324
sessions
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Not Attempted Yet
The financial committee is concerned about recent abrupt swings in stock markets. Some of the one day gains and losses have been among the largest in history, and in this era of computerized trading, tremendous changes can occur even within one hour. In order to minimize this volatility across stock exchanges, the financial committee has proposed new regulations to interrupt steep drops at the major stock exchanges. Under this plan the trading of a particular stock will be halted on the major stock exchanges once that stock loses just 20% percent of its value in a period of three hours or less.
Which of the following, if true, most clearly points to the conclusion that the financial committee’s plan will not result in less overall volatility in the stock exchanges?
A. The current curbs on trading at the major stock exchanges are credited with preserving some level of stability as the speed of trading has greatly increased.
B. Currency trading and commodity futures markets have much more volatility than major stock exchanges
C. When trading of a particular stock is halted at the major stock exchanges the value of that stock often plummets at the smaller exchanges that do not have automatic halts on trading.
D. Some experts speculate that computerized trading programs that react too quickly to small changes in the values of stocks cause the increased volatility that the financial committee is concerned about.
E. Investors should understand that the stock markets are volatile and that investments may gain or lose value very quickly.
Which of the following, if true, most clearly points to the conclusion that the financial committee’s plan will not result in less overall volatility in the stock exchanges?
A. The current curbs on trading at the major stock exchanges are credited with preserving some level of stability as the speed of trading has greatly increased.
B. Currency trading and commodity futures markets have much more volatility than major stock exchanges
C. When trading of a particular stock is halted at the major stock exchanges the value of that stock often plummets at the smaller exchanges that do not have automatic halts on trading.
D. Some experts speculate that computerized trading programs that react too quickly to small changes in the values of stocks cause the increased volatility that the financial committee is concerned about.
E. Investors should understand that the stock markets are volatile and that investments may gain or lose value very quickly.
30 May 2019, 03:25
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wishalsp333
C. Option 'C' talks about major stock exchanges in a different vein than smaller stock exchanges. And as from the question stem, we know that the plan only concerns with major stock exchanges as has been stated explicitly. Now, if we believe option C then the smaller exchanges can compensate for the 'overall' volatility gain in the major exchanges. Thus, potentially nullifying any gains or making the situation even worse.
Option C is correct.
30 May 2019, 03:49
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The right answer here is C. Since this is a "weaken the conclusion" question, our first step should always be to identify what that conclusion is. In this case, it is that "to minimize volatility", "the trading of a particular stock will be halted on the major stock exchanges once that stock loses just 20% percent of its value in a period of three hours or less". So what we're looking to pick is something that suggests that this plan will NOT minimize volatility.
A - This option is irrelevant as it talks about the efficacy of the CURRENT curbs. We only care whether the new curbs will work or not. OUT
B - Again, this option is irrelevant because the committee is not looking to regulate currency and futures trading, only the stock market. OUT
C - This is actually a relevant point. If the smaller exchanges cannot implement these automatic halts, then traders will simply move to these exchanges when a stock plummets. As a result, the volatility will remain unaffected. Hence, this option does weaken the conclusion and is CORRECT.
D - This option actually somewhat strengthens the conclusion. If the volatility is caused by computerized programs, then an automatic halt on trading will actually work just fine to prevent these programs from trading. OUT
E - This statement is technically true, but also completely irrelevant for our argument. Knowing that the stock market is volatile does nothing to impact volatility, and says even less about whether the plan in mind will work. OUT
- Matoo
