Reading Comprehension Quiz 14

Reading comprehension is a topic that appears frequently on all major competitive exams’ English language or verbal ability sections. Reading comprehension is a difficult subject to learn because it takes time and might go wrong if students do not comprehend the paragraph. Answering Reading Comprehension Questions should take up a significant amount of time for candidates. In most competitive exams, 5-10 questions from Reading Comprehension are asked. In this article, we have come up with the Reading Comprehension Quiz with a detailed explanation. All types of Reading Comprehension Questions for prelims and mains are included in this Reading Comprehension Quiz. This Reading Comprehension Quiz is completely FREE. Candidates should thoroughly go through this Reading Comprehension Quiz in order to enhance their preparation for upcoming exams.

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

 

The nearly $2 billion fraud at the Punjab National Bank (PNB) last month has renewed calls for privatization of state-owned banks. The managerial argument for privatization is it would make for more prudent decision making, increase accountability to shareholders, reduce complacency in management, improve profitability and end political influence in business decisions. Let us examine these arguments in detail. First, the alleged fraudulent transactions at PNB reflect lax operational controls, poor risk management and regulatory failure. Gordon Gekko’s famous quote that “greed is good” in the film Wall Street should, however, caution us against an unthinking push to privatization. Privatization, without strengthening regulatory controls and improving governance, won’t prevent fraud, or curtail undue exposure to risk. Indeed, it was the reckless approach to risk-taking by large private-sector banks that ultimately led to the collapse of Lehman Brothers in 2008 and exacerbated the global financial crises.

Second, it has been argued that state control encourages management complacency as managers are secure in the knowledge the government will always come to the bank’s rescue if it is in trouble. But is ownership the sole criteria for government intervention? Governments have in the past bailed out banks that were considered “too big to fail”, regardless of ownership, to prevent a systemic collapse. Freddie Mac, Fannie Mae, Royal Bank of Scotland, Bradford and Bingley and Fortis—all came close to going bankrupt during the global financial crises and had to be rescued using tax payers’ money. Arguably privatization in some instances led to privatizing profits and socializing losses. If PNB or the State Bank of India were privately owned, would the state allow these banks to fail? It has also been suggested that privatization makes management more accountable to markets, but these state-backed banks, having been partially privatized following the 1992 banking sector reforms in India, are already subject to stock-market discipline—including corporate disclosures and regular audited financial reports.

Another argument by advocates of privatization is it would foster increased competition, which would reduce the cost of financial intermediation and improve bank profitability. Yet again, it is unclear how a change in ownership from government to private hands would increase competition if the number of participants in the industry remain the same. Indeed, there are plans afoot to consolidate state-run banks, bringing down their number to about 15 from 21. Fewer but stronger banks could, however, provide more effective competition than a large number of weak banks.

The strongest case in support of privatization is that state-backed banks are hobbled by bureaucratic restrictions and undue political interference, making the sector susceptible to elite capture. As the experience with Air India has shown, political meddling can seriously hamper performance at state-run companies. Indeed, it has been said that India’s mounting bad debt problem may be partly a reflection of crony capitalism where political considerations may have forced the hand of bankers to extend credit to several powerful business houses who have since defaulted.

While political influence in extending credit to these large businesses may be true, it is difficult to prove without forensic evidence. What is clear, however, is that regulatory intervention over the past several years has forced banks to disclose their bad debt portfolio with consequent losses at state-owned banks. Indeed, the escalating bad debt problem is partly a reflection of overenthusiastic lending by banks to industry during boom years that came to light after the Reserve Bank of India forced the banks to declare their bad debt portfolio. Research by Credit Suisse in its highly regarded series “House Of Debt”, has tracked the weakening financial performance of 10 heavily indebted Indian conglomerates. These companies were caught in a debt trap despite attempts to sell assets, driven by turbulence in global commodity prices and a weak domestic economic recovery. Private banks too have incurred slippages but the magnitude of the loss is much less, thus making a case for privatization. On the flip side, however, a handful of large private banks can also engage in state capture—defined as the propensity of firms to shape the underlying rules of the game by purchasing decrees, legislation, and influence at the central bank.

  1. Global financial crises, associated with banking, arises due to

(a) unqualified government officials.
(b) improper implementation of the policies made by the regulatory body
(c) increase in the number of frauds in the banks
(d) depreciation in the stakes of the banks in global market
(e) undermining the limitations imposed on activities of the firm in compliance with regulatory body.

Answer & Explanation

. Ans. e

Exp. Refer the last few lines of the first paragraph that indicates that without strengthening the regulatory control, privatization won’t prevent fraud but exacerbate the global financial crises.

All other options are not exact explanation. Hence option (e) is the correct choice.

  1. What does the quote as used in the passage “greed is good” signify?

(a) The quote denotes the capital deficiency in the banks.
(b) It signifies immediate step to be taken to Privatize the banks for improving profitability.
(c) It indicates the steps towards ameliorating the infrastructure of the bank.
(d) both (b) and (c)
(e) All are correct

Answer & Explanation

Ans. b

Exp. As mentioned in the first paragraph of the passage, quote “greed is good” signifies push towards privatization for making profit and improving the deteriorating condition of public sector banks.

  1. In what context does “too big to fail” is used in the passage?

(a) The government only supports the banks which are under their ownership.
(b) Government had neglected the banks which failed to make profit regardless of their ownership.
(c) Government had assisted the failing banks, that are crucial for the economy.
(d) To prevent the big firms from ceasing, government privatised them.

(e) Big firms are difficult to fail as they are assisted by government.

Answer & Explanation

Ans. c

Exp. As mentioned in second paragraph of the passage, “too big to fail” refers to the banks that are important to the economy of a country that a government or central bank must take measures to prevent it from ceasing to trade or going bankrupt.

  1. In the context of the passage, privatising the banks leads to

(I) increase in profitability and decrease in loss.
(II) dependence on its own regulatory body.
(III) low competitive environment.

(a) Only (I)
(b) Only (II)
(c) Both (I) and (II)
(d) Both (II) and (III)
(e) All are correct

Answer & Explanation

Ans. a

Exp. Refer the third paragraph of the passage.

  1. How the condition of the public-sector banks can be improved?

(I) by increasing autonomy for state-backed banks and strict regulatory oversight by the banking supervisor.
(II) by making the boards of state-backed banks independent of political influence.
(III) By keeping a check in its lending rate to the industries in their boom years.

(a) Only (I)
(b) Only (II)
(c) Both (I) and (II)
(d) Both (II) and (III)
(e) All are correct

Answer & Explanation

Ans. e

Exp. All the given sentences are correct in context to the passage. The passage is about privatization of the public- sector banks and reasons behind it.

 

  1. Which of the following is an appropriate title of the passage?

(a) PNB undergoing bad debt problem
(b) Privatizing profits and socializing losses.
(c) Increase of global financial crises
(d) Drawbacks of Crony capitalism
(e) Is Bank privatization gives the ultimate solution?

Answer & Explanation

Ans. e

Exp. “Is Bank privatization gives the ultimate solution?” is an appropriate title of the passage.

  1. Which of the following words is most similar to the word ‘prudent’ as given in the passage?

(a) ardent
(b) curtail
(c) invigorate
(d) wise
(e) abridge

Answer & Explanation

Ans. d

Exp. Prudent means acting with or showing care and thought for the future. Hence it has the similar meaning as wise.

  1. Which of the following words is most similar to the word ‘complacency’ as given in the passage?

(a) deceit
(b) arduous
(c) smugness
(d) callous
(e) bane

Ans. c

Exp. Complacency means a feeling of smug or uncritical satisfaction with oneself or one’s achievements. Hence it has the same meaning as smugness.

  1. Which of the following words is opposite in meaning to the word ‘turbulence’ as given in the passage?

(a) tranquility
(b) appetence
(c) voracity
(d) liability
(e) proclivity

Answer & Explanation

Ans. a

Exp. Turbulence means instability. Hence tranquility is opposite in meaning to turbulence.

  1. Which of the following words is opposite in meaning to the word ‘consolidate’ as given in the passage?

(a) intrusion
(b) disperse
(c) fortuity
(d) exigency
(e) assailment

Answer & Explanation

Ans. b

Exp. Consolidate means combine (a number of things) into a single more effective or coherent whole. Hence it has the opposite meaning to disperse.

English Grammar Rules

Read More The Hindu Editorial Vocab

 

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