Reading Comprehension for IBPS PO/Clerk 2017: Set – 30

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Reading Comprehension for IBPS PO/Clerk 2017


Directions:(1-10) Read the following passage carefully and answer the questions. Certain words are in bold to help you locate them while answering some of the questions.

The immediate provocation for a renewed round of investor panic was the sharp depreciation of the Chinese yuan over three days starting August 11, which brought its value down by a little more than 3 per cent relative to the U.S. dollar. Even though the Chinese government had taken the yuan off its erstwhile implicit dollar peg in 2005, the government and the central bank had managed the currency such that: (i) on average, it appreciated vis-à-vis the dollar, reflecting the country’s large and persistent current account surplus (or excess of its export earning over its import spending); and (ii) it recorded only small or marginal changes at any given point in time. Over the medium term the currency did register significant appreciation. Thus, the Trade Weighted Exchange Rate of the yuan (or its rate relative to the currencies of its major trading partners weighted by their importance in its trade basket) has appreciated by as much as 50 per cent since 2005.

This made the sudden depreciation in August a surprise. China still records a surplus on its current account ($76.6 billion in the second
quarter of 2015), even if that has fallen in magnitude in recent times. This should normally keep the currency strong. China’s problem, however, has been a recent surge in net capital outflows from the country. According to Bloomberg, the net amount of assets that left
China totalled $450 billion in the past four quarters, after adjusting for changes in the valuation of foreign exchange reserves. Clearly, investors are expecting returns from China to fall, prompting an exit. This has created a situation, argue some observers, wherein if the government does not intervene in the market to stabilise the yuan, the depreciation of the currency is an inevitability.

On the other hand, blinded by its reform-driven desire to internationalise the RMB (or yuan) and ensure its inclusion in the basket of currencies that are used to value the SDR (Special Drawing Rights), or the International Monetary Fund’s unit of account, the Chinese government reportedly allowed market forces to operate in its foreign exchange market. The result, according to this view, was the sharp depreciation witnessed in August. This Argument is Strengthened by China’s own declaration that what happened with the yuan was the result of a shift to a more market-friendly regime.There are others who have a different view on the matter.This is that China was consciously engineering a  depreciation of the yuan either with proactive open market operations (in which it bought dollars in an already stringent market) or by holding back on intervention at a time when it was conscious that market forces would precipitate a depreciation. The fact that the Central Bank could (and did) intervene to stabilise the RMB after the initial sharp depreciation of the currency suggests that the latter could have been the case.

The engineered depreciation of the yuan, it is held, indicates that despite talk of rebalancing growth by reducing the extent of engagement with external markets through exports and by ensuring a shift from investment to domestic consumption as the driver of growth, the government has decided to address its growth problem by spurring exports and restricting imports through a devaluation of its currency.Currency devaluation increases the local currency prices of imports and reduces the dollar prices of exports. Resort to such an engineered depreciation is indicative of an aggressive thrust into global markets.

1. What is the meaning of current account surplus?
a. The country’s projected expenditure is lower than its projected revenue
b. There is an excess on export income over import spending.
c. More funds are invested in the country from outside as opposed to the amount invested by the country in other countries.
d. The country is not dependent on financial bubbles.
e. None of the above

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2.What is China’s problem?
a. The balance of trade is not in China’s favour.
b. The depreciation of the yuan has caused investors to pull out.
c. A surge in the net capital outflows from China.
d. An aggressive attitude towards the global market.
e. None of the above

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3.What did the Chinese government allow in order to internationalize the RMB or the yuan?
a. They allowed market forces to operate in their foreign exchange markets.
b. They allowed depreciation of the yuan vis-à-vis the dollar.
c. They allowed an excess of net capital outflows from within the country.
d. They allowed their reserve of foreign capital to depreciate.
e. None of the above.

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4.What supports the argument that the Chinese government consciously caused the depreciation of Chinese currency?
a. The Central Bank continued to allow excess of net capital outflows.
b. The economic policies of the Chinese government led to a change in the Trade Weighted Exchange Rate of the yuan.
c. The Central Bank never intervened to stop the decline and stabilize the currency.
d. The government reduced contact with the external markets through exports when the decline became noticeable.
e. None of the above

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5.How has the government decided to address the problem of growth?
a. By reducing the extent of contact with external markets through exports
b. By ensuring a shift from investment to domestic consumption as the driver of growth.
c. By reducing the local currency prices of imports and increasing the dollar prices of exports.
d. By spurring exports and restricting imports through a devaluation of currency.
e. None of the above

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6.Which of the following words is closest in meaning to the word erstwhile as used in the passage?
a. Former
b. Continuum
c. Beginning
d. Foretold
e. None of the above

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7.Which of the following is farthest in meaning from the word appreciated as used in the passage?
a. Acknowledge
b. Obliged
c. Decreased
d. Blamed
e. None of the above.

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8.Which of the following is closest in meaning to the word magnitude as used in the passage?
a. Radiance
b. Extent
c. Effect
d. Brilliance
e. None of the above

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9.Which of the following is farthest in meaning from the word inevitability as used in the passage?
a. Uncertainty
b. Conviction
c. Assured
d. Faith
e. None of the above

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10.Which of the following is closest in meaning to the word stringent as used in the passage?
a. Yielding
b. Pliant
c. Flexible
d. Exacting
e. None of the above.

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