The central bank of Lebanon “Banque Du Liban” is confronting

Question

The central bank of Lebanon “Banque Du Liban” is confronting the biggest economic and financial crisis in the modern history of Lebanon. In fact, the Lebanese Pound lost more than 80% of its value against the US Dollar. In order to ease the situation on the Lebanese people, the Central Bank is using its reserve of foreign currencies to support the importation of necessities. To lessen the increase of foreign reserve scarcity, the Governor decided to increase the maximum printed bank note value from 100,000LBP to 1,000,000 LBP.

Which of the following, if true, would most seriously strengthen the decision of the governor?

A) Increasing the liquidity of lebanese pound augments the demand on foreign currencies that, in turn, depreciates more the value of Lebanese Pound.
B) The printing cost of bank notes, in last two months, arose to 0.2 euros/bank note.
C) The current low value of Lebanese Pound forced citizens to carry on large number of papers that increased incidences and insecurity in the country.
D) Raising the amount of money in circulation would increase the purchasing power of the consumer in LBP and therefore help the economy.
E) Most prices of unnecessary products are in the range of 1,000,000LBP.

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dreamzcometrue · Answer

I presume the correct answer is D. How can the choice B strengthens the argument?

Kinshook · Answer

The central bank of Lebanon “Banque Du Liban” is confronting the biggest economic and financial crisis in the modern history of Lebanon. In fact, the Lebanese Pound lost more than 80% of its value against the US Dollar. In order to ease the situation on the Lebanese people, the Central Bank is using its reserve of foreign currencies to support the importation of necessities. To lessen the increase of foreign reserve scarcity, the Governor decided to increase the maximum printed bank note value from 100,000LBP to 1,000,000 LBP.

Which of the following, if true, would most seriously strengthen the decision of the governor?

A) Increasing the liquidity of lebanese pound augments the demand on foreign currencies that, in turn, depreciates more the value of Lebanese Pound. 
The statement weakens the decision of the governor since the step will increase scarcity of foreign reserve.
 B) The printing cost of bank notes, in last two months, arose to 0.2 euros/bank note.
 The statement strengthens the conclusion since printing of high denomination notes will lessen scarcity of foreign reserves.
 C) The current low value of Lebanese Pound forced citizens to carry on large number of papers that increased incidences and insecurity in the country. 
The conclusion is not about incidences and insecurity in the country.
 D) Raising the amount of money in circulation would increase the purchasing power of the consumer in LBP and therefore help the economy.
 The statement is not concerned with foreign reserve.
 E) Most prices of unnecessary products are in the range of 1,000,000LBP.
 Out of context.

IMO B

Archit3110 · Answer

premise of argument : the Lebanese Pound lost more than 80% of its value against the US Dollar. In order to ease the situation on the Lebanese people, the Central Bank is using its reserve of foreign currencies to support the importation of necessities.
conclusion of argument : To lessen the increase of foreign reserve scarcity, the Governor decided to increase the maximum printed bank note value from 100,000LBP to 1,000,000 LBP.

Target   most seriously strengthen   the decision of the governor

A) Increasing the liquidity of lebanese pound augments the demand on foreign currencies that, in turn, depreciates more the value of Lebanese Pound.-- this is not valid with the argument and would weaken 
B) The printing cost of bank notes, in last two months, arose to 0.2 euros/bank note. : with increase in printing cost per bank note , now if the Govt of Lebanese bank prints notes of higher denomination then they would be able to minimise the foreign currencies reserves and also be able to use this higher denomination value note to import necessities ; correct choice 
C) The current low value of Lebanese Pound forced citizens to carry on large number of papers that increased incidences and insecurity in the country. this is out of scope 
D) Raising the amount of money in circulation would increase the purchasing power of the consumer in LBP and therefore help the economy. : increase in circulation of money cannot increase purchasing power as the value of LBP is already below 80% in short there is high inflation so things are more expensive than they were so earlier ; wrong option 
E) Most prices of unnecessary products are in the range of 1,000,000LBP. : target is to lessen foreign reserves which this option does not strengthens strongly

sarthakk07 · Answer

Can an expert please help me provide the insights

MichelNader · Answer

Very good question. It directly tests your logical thinking and business sens knowledge! Keep it up Said. Answer is B

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SaidNassar1991 · Answer

Why printing banknotes of 1,000,000 LBP instead of 100,000 LBP slows the spending of foreign reserves?

A) Increasing the liquidity of lebanese pound augments the demand on foreign currencies that, in turn, depreciates more the value of Lebanese Pound: It doesn’t help, in fact it weakens; increasing demand on foreign currencies decreases the reserves.
B) The printing cost of bank notes, in last two months, arose to 0.2 euros/bank note: In case of hyperinflation that is happening in this country, Central Bank has to print more money to scope with the low value of money in circulation. The price is in euro indicating that the printing process is done in Europe or needs raw materials from Europe.
 So for exemple to pump 1,000,000,000 LBP in the market, you need 10,000 papers of 100,000LBP denominated bank note or 1,000 papers of 1,000,000 LBP denominated bank note. 
So if you spend 1,000*0.2=200€ on papers of 1,000,000 instead of 10,000*0.2=2,000€ on papers of 100,000 the Governor will save foreign reserves. It strengthens very seriously the decision.
C) The current low value of Lebanese Pound forced citizens to carry on large number of papers that increased incidences and insecurity in the country: In this statement we can conclude that this decision will increase the safety of the citizens and not the foreign reserves.
D) Raising the amount of money in circulation would increase the purchasing power of the consumer in LBP and therefore help the economy: More money in circulation in LBP would increase the spending in LBP and enforce the economy locally, but it doesn’t answer the foreign reserve problem in any way. In fact, the main reason of the crisis is increasing money in circulation when they raised the wages of public sector. Public workers started to convert the extra money to foreign currencies and take vacations outside the country to spend it, and therefore consuming the reserve. So in D while increasing the consumer purchase power, we are increasing the GDP and the economy virtually, but also we are increasing the importation in a bad built economy, and increasing scarcity of foreign reserve.
E) Most prices of unnecessary products are in the range of 1,000,000LBP: In this statement we can conclude that this decision solves the problem of paying less number of papers but it’s irrelevant to the foreign reserve scarcity.

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VerbalBot · Answer

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The central bank of Lebanon “Banque Du Liban” is confronting

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