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by sheena_gmat » Tue Nov 18, 2008 1:54 am
Hi ! I read this question on some forum . Can anyone tell me the answer and the reason ?

Q1) Which of the following best completes the passage below?

As long as savings deposits are insured by the government, depositors will have no incentive to evaluate the financial strength of a savings bank. Yield alone will influence their choice of bank. To attract deposits, banks will be forced to offer the highest possible interest rates. And since paying higher rates inevitably strains the financial strength of a bank, ______

(A) the government will be forced o impose limitations on interest rates
(B) deposit insurance will ultimately lead to the financial weakening of many banks
(C) savers will be forced to choose between deposit insurance and higher interest rates
(D) deposits will tend to go to the banks with the greatest financial strength
(E) bank profits will tend to rise to ever-higher levels
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Source: — Critical Reasoning |
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by slash » Tue Nov 18, 2008 2:26 am
To Attract deposis, bank has to offer the highest possible interset rates. On paying so it will lead ______


(A) the government will be forced o impose limitations on interest rates
This choice is tempting me to select, but seems to be not logical.

(B) deposit insurance will ultimately lead to the financial weakening of many banks
If more interest were paid to the customer it will ultimately lead financial weakening of banks. This one is mine

(C) savers will be forced to choose between deposit insurance and higher interest rates
Out of scope

(D) deposits will tend to go to the banks with the greatest financial strength
Deposits with highest possbile interset rates will not add as a financial strength

(E) bank profits will tend to rise to ever-higher level
This choice is exactly the opposite of the answer, bank profits will not tend to higher level.
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by raunekk » Tue Nov 18, 2008 4:16 am
one more for B...
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by jsl » Tue Nov 18, 2008 4:39 am
I'm not convinced with B because it talks about "deposit insurance". I'm going with A....
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by raunekk » Tue Nov 18, 2008 5:38 am
I think A is out of scope.....

this is an example of shell game...

(A)the government will be forced to impose limitations on interest rates

The stimulus talks about government insuring the deposits..

It doesnt talk about government controlling interest rates..


I dont think we can assume that..!!
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by mals24 » Tue Nov 18, 2008 6:40 am
One more vote for B

The argument shows how deposit insurance can lead to financial weakening of banks.
Rest all options are not supported by the argument.
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by sandeep_thaparianz » Sun Jul 15, 2012 2:38 am
+1 for B
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by nsamkari » Sun Jul 15, 2012 10:32 am
To be ensured that paragraph are consistently written , I must choose A .[/quote]
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by confuse mind » Mon Jul 23, 2012 8:20 pm
IMO - B

A - no premise talks about government controlling the bank rates or so and thus we mark that it would be bringing external info
C - far fetched
D - opposite of the given premise
E - possibly opposite
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