Reading Comprehension Home Exercise- 03, PASSAGE D

 Most large corporations in the United State were once run by individual capitalists who owned enough stock to dominate the board of directors and dictate company policy. Because putting such large amounts of stock on the market would only depress its value, they could not sell out for a quick profit and instead had to concentrate on improving the long –term productivity of their companies. Today, with few exceptions, the stock of large United States corporations is held by large institutions – pension funds, for example – and because these institutions are prohibited by antitrust laws from owning a majority of a company’s stock and form actively influencing a company’s decision-making, they can enhance their wealth only by buying and selling stock in anticipation of fluctuations in its value . A minority shareholder is necessarily a short term trader. As a result, United States productivity is unlikely to improve unless shareholders and the managers of the companies in which they invest are encouraged to enhance long-term productivity (and hence long-term profitability), rather than simply to maximize short –term profits.

Since the return of the old- style capitalist is unlikely, today’s short –term traders must be remade into tomorrow’s long-term capitalistic investors. The legal limits that now prevent financial instructions’ from acquiring a dominant shareholding position in a corporation should be removed and such institutions encouraged to take a more active role in the operations of the companies in which they invest. In addition, any institution that holds 20 percent or more of a company’s stock should be forced to give the public one day’s notice of the intent to sell those shares. Unless the announced sale could be explained to the public on grounds other than anticipated future losses, the value of the stock would plummet and, like the old- time capitalists, major investors could cut their losses only by helping to restore their companies’ productivity. Such measures would force financial institutions to become capitalists whose success depends not on trading shares at the propitious moment, but on increasing the productivity of the companies in which they invest.

             19. In the passage, the author is primarily concerned with doing which of the following?

A.       comparing two different approaches to a problem

B.      Describing a problem and proposing a solution

C.      Defending as established  method

D.      Presenting data and drawing conclusions from the data

                20. It can be inferred from the passage hat which of the following is true of majority shareholders in a corporation?

A.      They make the corporation’s operational management decisions.

B.      They are not allowed to own more than 50 percent of the corporation’s stock.

C.      They cannot make quick profits by selling off large amounts of their stock in the corporation

D.      They are more interested in profits than in productivity.

                  21. According to the passage, the purpose of the requirement suggested would be which of the following?

A.       To encourage institutional stockholders to sell stock that they believe will decrease in value.

B.      To discourage institutional stockholders from intervening in the operation of a company whose stock they own

C.      To discourage short- term profit taking by institutional stockholders

D.      To encourage a company’s employees to take an active role I the ownership of stock in the company.

Answer:

19.   B      Analyze what the author is doing in each paragraph of the passage. The first paragraph presents a problem: the failure of shareholders and managers to enhance a c company’s long-term productivity. The second paragraph proposes a possible solution to that problem.

20.     C     Consider what the passage says about individual capitalists who owned enough stock to dominate the board of directors and dictate company policy the logical inference from this information is that these individual capitalists were majority stockholders; they are the only majority shareholders discussed in the passage. The passage also indicates that these capitalists could not sell out for a quick profit and instead had to concentrate on …. Long –term productivity.

21.   C    the author explains that old-style capitalists did not put large amounts of stock on the market because it would only depress its value; they could not sell out for a quick profit and instead had to concentrate on improving the long-term productivity of their companies. The requirement that major institutional shareholders notify the public before a significant sale of stock fulfils the same purpose.  They would not be able to make a quick profit by trading shares at a propitious moment and would instead have to work toward increasing the long-term productivity of the companies in which they invest.