Reading Comprehension

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.

1. 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

2. 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.

Please explain your pick.

1. The author's main point is argued by

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.

(D) showing that omissions in a theoretical description make it inapplicable in certain cases


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

Para2: 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
Para3: 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

(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.


Please let me know if you still consider any other option a serious candiate. We will discuss.

Structure of the passage :

1 - the difference of capital market from theoretical and practical point.

2 - "for example" ---> we can predict that its going to support the author's view that is presented in the first para.
example presented with a reason.

3 - "Most traditional finance-market analysis" --> short comings on this issue -- This is the fuction of the capital market that was negated my the athor in the first para --> here the author states the reason why ??

1. theory that the author negate ----> example used to support the viw point ----> the reason for its negation.

A -> the author is not supporting the conventional generalization
B -> the author present the reason for his views, so there is no scope of " self-contradictory"
C -> there is proposed plan - proposed plan is futuristic.

D -> this is the correct one.

E -> where is the alternative hypothesis that more closely fits the date ? - here the author is just negating an idea and supporting it with an example and not presenting any alternative hypothesis. Consider this.

water is produced when hydrogen and oxygen react. But this is not the correct one as it assumes X,y and Z.
water is produced when hydrogen and oxygen react. But this is not the correct one. The reason why water is produced ......

Note : please dont judge the validity of my example

Notice the difference between the two. Well E is a tricky one but not the correct one.

2. IMO:C
refer the first line - 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


Hope this helps !!

OA: D C

1. 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 chose C, but the OA is D. Can you please clearly why 'C' is wrong and D is the correct answer?

Regards,
A

criticizing is "too harsh" + where is the author criticizing ? does he use any words like "financial advisors are responsible for this inequality in distribution" ?

avik.ch wrote:Structure of the passage :

1 - the difference of capital market from theoretical and practical point.

2 - "for example" ---> we can predict that its going to support the author's view that is presented in the first para.
example presented with a reason.

3 - "Most traditional finance-market analysis" --> short comings on this issue -- This is the fuction of the capital market that was negated my the athor in the first para --> here the author states the reason why ??

1. theory that the author negate ----> example used to support the viw point ----> the reason for its negation.

A -> the author is not supporting the conventional generalization
B -> the author present the reason for his views, so there is no scope of " self-contradictory"
C -> there is proposed plan - proposed plan is futuristic.

D -> this is the correct one.

E -> where is the alternative hypothesis that more closely fits the date ? - here the author is just negating an idea and supporting it with an example and not presenting any alternative hypothesis. Consider this.

water is produced when hydrogen and oxygen react. But this is not the correct one as it assumes X,y and Z.
water is produced when hydrogen and oxygen react. But this is not the correct one. The reason why water is produced ......

Note : please dont judge the validity of my example

Notice the difference between the two. Well E is a tricky one but not the correct one.

2. IMO:C
refer the first line - 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


Hope this helps !!

I don't understand the meaning of answer option D
showing that omissions in a theoretical description make it inapplicable in certain cases

Please can you explain