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Direction (): Read the given passage carefully and answer the questions that follow. Certain words are printed in bold to help you locate them while answering some of these.
The 2008 financial crisis continues to adversely hurt millions of people in the United States. Few experts have contributed a significant body of research to design needed changes to the U.S. banking system for the sake of ordinary people. Together,
they brainstormed what the necessary next steps should be to make banking safer for Main Street. One of the experts agrees with the U.S. Financial Inquiry Commission that the 2008 crisis was avoidable, since it was caused by weak corporate governance and policy failures. According to her, ten years after the crisis “the financial system remains fragile, inefficient and dangerous.” Her concern is that “Despite reforms put in place after the crisis, bankers, politicians and regulators consistently overstate
the system’s health and the effectiveness of new rules.” The expert believes policymakers still lack “the political will to address the
underlying flaws in the system.” These problems are due to the failure of markets to produce efficient outcomes when the interests of people with better information and control conflict with the broader public interest. She has focused in particular on trying to ensure that banks use more equity funding, a cause that has support from both sides of the political spectrum. She is concerned about recent Republican efforts to water over these particular rules for banks in the $100 billion to $250 billion asset range. “In principle, tailoring the rules sounds good, but the challenge is in the implementation. Tailoring is likely to lead to weakening of the rules in a race to the bottom.” She emphasizes that institutions with assets between $50 billion and $250 billion have been and can again be quite dangerous. The failure of one or more of them, or what will happen to many of them as a result of a change in
economic conditions can cause significant disruption and collateral harm. The Savings and Loans crises along with others around the world have shown that even small institutions that all take similar risks and tend to fail at the same time can be dangerous and costly.
Which of the following state the observation made by the expert on the 2008 financial crisis of the US and its effects?
I. The current financial system remains weak as the economy has not recovered since the crisis.
II. The crisis could have been avoided if the then U.S. government had not unnecessarily appreciated their financial policies and economic reforms.
III. The crisis could have been avoided and a sound legislation could have played a significant role in it.
IV. Had the banks ensured more usage of equity funding ten years ago, the crisis would not have occurred at all.
Both II and III
Both II and IV
Both I and III
According to the passage:
I. “According to her, ten years after the crisis “the financial system remains fragile, inefficient and dangerous.”” Thus, alternative I is incorrect.
III. “… the 2008 crisis was avoidable since it was caused by weak corporate governance and policy failures”. This means that strong corporate governance and policy failures (legislation) could have avoided the crisis. Thus, alternative III is correct.
Alternatives II and IV are incorrect as both the statements are stated in reference to the present political and economic scenario of the U.S. and cannot be applied to the 2008 financial crisis.
By: Munesh Kumari ProfileResourcesReport error
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