RBI Assistant 2017 · Question 59 of 200

Direction: Read the following passage carefully and answer the questions given below them. Certain words/phrases have been printed in bold to help you locate them while answering some of the questions. This was supposed to be the year when monetary policy started to get back to normal. Seven years after Lehman Brothers collapsed, central banks were expected to edge away from a policy of near-zero interest rates. But now, with the year almost e . over, the Federal Reserve has yet to push up rates while other rich-world central banks are focused more on easing than on tightening. Sweden’s Riksbank extended its quantitative easing (QE) programme on October 28th. Mario Draghi, the president of the European Central Bank, has indicated that further easing may come in December, probably by adjusting the pace, scale or type of asset purchases in its QE regime. More than two-fifths of economists polled by Bloomberg forecast that ix the Bank of Japan would pick up the pace of its monetary easing on October 30th, after The Economist went to press. Even if w . policy is kept unchanged, the bank plans to expand the money supply at an annual rate of ¥80 trillion ($664 billion).The picture in the emerging markets is more mixed. Capital Economics calculates that, on balance, slightly more emerging ww central banks have been tightening than cutting. But China cut interest rates on October 23rd, the sixth reduction in the last year. India unveiled a half-percentage-point rate cut in late September. The attitude of central banks reflects their worries about economic growth. The IMF just lowered its global growth forecast to 3.1% for 2015, with cuts applying to both advanced and developing economies. Inflation is also low in Europe, North America and Asia, giving central banks more freedom to be supportive. The benign interest-rate outlook is one reason why equities have recovered from the wobbles they suffered in August and September. As of October 28th, the S&P 500 index had regained nearly all the ground lost in the previous two months. Futures markets indicate that investors do not expect the first Fed hike until next year, although that may change after the Fed’s open market committee removed a previous reference to global economic risks in its October statement. The other main reason why markets have rallied is a more sanguine view of the Chinese economy. Official figures for third- quarter GDP showed growth of 6.9% and, although some have doubts about the data, it was noticeable that the IMF did not downgrade its forecast for Chinese growth in its latest global outlook. But the optimism should not be taken too far. Other market indicators still suggest investors are worried about sluggish growth and deflation. Bloomberg’s commodity index is down by more than a quarter over the past 12 months. The yield on the ten-year Treasury bond is hovering around 2%, not a level that suggests investors expect normal levels of economic growth to return any time soon. American companies are also struggling to maintain the robust profit growth they have shown since 2009. While third- quarter profits for S&P 500 companies are marginally ahead of expectations (as is usually the case), they are still likely to be 4% lower than they were a year ago; sales will probably fall by 3%.It is simply hard to keep pushing up profits when global GDP growth is subdued. The number of American companies citing a slowing global economy as affecting their profits and revenues is more than 50% higher than a year ago, according to Thomson Reuters. The news is no better in Europe, where What do the statistics regarding the third quarter profits of S&P 500 American companies convey?

Reading Comprehension

1. AWith slow global economic growth, the profitability of these companies will be affected.Correct
2. BAmerican companies have not even achieved 50 percent of their growth projections.
3. CAmerican companies are growing twice as much as they did in 2009.
4. DAmerican companies have outdone their European rivals by a huge margin.
5. EThese are inflated and growth of these companies is negligible.