* Investment Banking

[philanderer.lover]

Hi Ron,

I am stuck between A and B....Please explain...

Investment banks often have conflicting roles. They sometimes act for a client company by raising capital from other investment institutions as advantageously as possible, but their analysts also sometimes send unfavorable reports on the financial health of companies for whom they are raising capital to other clients who wish to make investments. Analyses of companiesтАЩ financial health need to be unbiased if an investment bank is to achieve long-term success.

If the statements above are true, which of the following practices, if adopted by an investment bank, would hinder its long-term success?

A. Evaluating and rewarding the bankтАЩs analysts on the basis of recommendations made by managers who are solely engaged in raising capital for clients
B. Using reports by the investment bankтАЩs analysts to determine how best to raise capital for a client
C. Sharing the task of raising capital for a client with other investment banks
D. Ensuring that conflicts between analysts and those who raise capital for clients are carefully mediated and resolved by impartial arbitrators
E. Monitoring the success or failure of analystsтАЩ current predictions about how companies will perform financially, in order to determine the value of future predictions

SOURCE-->OLD GMAT PAPER

Regards,
Philand

[RonPurewal]

in this problem, the question itself is not very straightforward, so you must first "decode" the actual question:

If the statements above are true, which of the following practices, if adopted by an investment bank, would hinder its long-term success?

according to the passage, there is a fundamental conflict between
(1) investment bankers who are raising capital for other companies, and
(2) the banks' analysts, who sometimes send reports giving unfavorable evaluations of those companies.

in order to promote the "long-term success" of the company, the idea is that we have to bridge the gap between those two groups. therefore, any strategy that ignores the interests of one of these groups, paying exclusive attention to the other, will be a hindrance to long-term success.

let's look at the two choices you mentioned:

A. Evaluating and rewarding the bankтАЩs analysts on the basis of recommendations made by managers who are solely engaged in raising capital for clients

this strategy bridges the gap between #1 and #2 above, since it rewards the analysts (#2) based on the recommendations of the capital-raising managers (#1).

B. Using reports by the investment bankтАЩs analysts to determine how best to raise capital for a client

this strategy will be a hindrance to the banks' long-term success, since it relies exclusively on the (often unfavorable) recommendations of group #2.

[akhp77]

I don't know what is the source of this problem. I looked at several places and found that OA is A.

Hi Ron,

Great explanation.

Conclusion: Analysis of companies' financial health need to be unbiased if an investment bank is to achieve long-term success.

So, We need to find the option, which indicates that financial health is biased. It means that we need to support analysts what was doing. Option A perfectly fits for it.

How to eliminate B?
"Using reports by the investment bank's analysts" => I believe that analysts are using report.
If analysts' report used by someone else for decision, then it can be.
I am not very much sure. Can you please elaborate it?

[RonPurewal]

I don't know what is the source of this problem. I looked at several places and found that OA is A.

Hi Ron,

Great explanation.

Conclusion: Analysis of companies' financial health need to be unbiased if an investment bank is to achieve long-term success.

So, We need to find the option, which indicates that financial health is biased. It means that we need to support analysts what was doing. Option A perfectly fits for it.

How to eliminate B?
"Using reports by the investment bank's analysts" => I believe that analysts are using report.
If analysts' report used by someone else for decision, then it can be.
I am not very much sure. Can you please elaborate it?

this issue is the topic of the post directly above yours; in that post, i explained in detail why (b) is correct and (a) is not.
in that post, what did you have trouble understanding?

[akhp77]

Hi Ron,

I understood your post.

I said that people have posted OA as A not B. I have no idea about source.
URL: http://www.beatthegmat.com/invt-banks-t14839.html, http://www.beatthegmat.com/investment-bank-t16030.html

"analysts also sometimes send unfavorable report ..." => I believe that they do not always do so and based on that we can't say definitely B is the answer.

Am I missing something?

[RonPurewal]

Hi Ron,

I understood your post.

I said that people have posted OA as A not B. I have no idea about source.
URL: http://www.beatthegmat.com/invt-banks-t14839.html, http://www.beatthegmat.com/investment-bank-t16030.html

"analysts also sometimes send unfavorable report ..." => I believe that they do not always do so and based on that we can't say definitely B is the answer.

Am I missing something?

hmm. interesting.

at this point, let's put a freeze on this problem until somebody comes forward with the ORIGINAL SOURCE. i am betting that the original source is NOT the gmatprep software.

remember that this folder is only for gmatprep problems!

if nobody comes forward with the ORIGINAL source of this problem, we will delete this thread within a week or two.

[prakhar_au]

I too feel B should be the answer, if it's a question from GMATprep software:)

[tim]

Nothing, eh? LOCK..

Please do yourselves a favor people, and be careful when using questionable sources for your studying, ESPECIALLY when you are getting the problems n-th hand with no way to check up on the OA or even if the problem is reproduced correctly..