Part II Reading comprehension

Section A

Directions: There 4 passages in this part. Each passage is followed by some questions or unfinished statements. For each of them there are four choices marked A, B, C and D. You should decide on the best choice and blacken the corresponding letter on the Answer Sheet with a pencil.

      Passage 1

     The increase in the margin rate from 50% to 70% was not an attempt to stem any rampant speculation on the part of the public—actually the market seemed technically quite strong, with public participation essentially dignified—but rather an attempt by the Federal Reserve Board to preserve the sound underpinnings that existed in the market. Naturally, such a move had a momentarily chilling effect upon prices but if the FRB had been preoccupied with undue speculation, the increase might have been to the 80% or even 90% level. Such an increases in the margin rate is a confirmation of a strong stock market and since 19…, such increases have resulted in interim market highs over twelve months later. Obviously, there could be no guarantee that this would once again be the case, but if history is any guideline—and if business and corporate earnings were to continue on the same course—continued optimism over the outlook for the stock market would seem more prudent than pessimism.

     The margin increase underscored the good rise that stocks had enjoyed for the previous year—and the fact that a 50% rate was maintained as long as it was pointed up the fact that the rise was mainly conservative in that it was concentrated in the blue chips for the most part. In past Investment Letters we have voiced the thought that speciality stocks could outperform the general market from this point. We continue to believe that this could be the case. For example, steel stocks tend to sell at certain fixed price/earnings ratios. Below a certain ration they are considered good value—above a certain ratio, overpriced. If a company produces a unique product it is far more difficult for market analysis to place a numerical ratio upon the company’s earnings. We have also contended in the past Letters that the stock market reflects mass psychology as well as the business outlook. When investors—when they are in an optimistic frame of mind—become far less preoccupied with yields and more willing to pay a premium (high p/e multiples) for accelerated growth. If the public’s attitude towards the auto industry is any measure, then this period seems to have been one of optimism.

41. The title that best expresses the ideas of this passage is         .

   A. A Time to Sell Stock                     B. A Strong Stock Market

   C. Raising the Margin Rate                  D. Price/ earnings Ratio in Steel

42. When investors are pessimistic what do they do?

   A. They look to the FRB for help             B. They buy steel.

   C. They buy automobile stocks.              D. They look for high yields.

43. Why does the writer believe that speciality stocks could outperform the general market?

   A. Because analysis have difficulty in deciding upon a fixed price/earnings ratio.

   B. Because the activity had been limited to blue chips.

   C. Because the rise was conservative.

   D. Because of the FRB action.

44. When investors are optimistic, what do they do ?

   A. They look for accelerated growth.           B. They buy speciality stocks.

   C. They look for high yields.                 D. They are more prudent.

Passage 2

     Like a ticking time bomb, the falling dollar has grabbed the attention of Japan and West Germany, forcing them to consider adopting economic policies the United States advocates. The US government wants the dollar to fall because as the dollar declines in value against the yen and Deutsche mark, US goods becomes cheaper. US companies then sell more at home and abroad, and US trade deficit declines. Cries for trade protection abate, and the global free-trade system is preserved.

     Then, the cheaper dollar makes it cheaper for many foreign investors to snap up US stocks. That prompts heavy buying from abroad –especially from Japan. Also, if the trade picture is improving, that means US companies eventually will be more competitive. Consequently, many investors are buying shares of export-oriented US companies in anticipation of better profits in the next year or so. But that is a rather faddish notion right now; if corporate earnings are disappointing in the next few quarters, the buying spree might disappear. And finally, if a plummeting dollar leads to a rise in interest rates, the stock market rally could stall.

     Improving US competitiveness means a decline in another’s competitiveness.

     Japan and West Germany are verging on recession. Their export-oriented economies are facing major problems. Japan is worried about the damage the strong yen will do to Japanese trade. West Germany is also worried. Share prices in Frankfurt plummeted this past week. Bonn is thought to be considering a cut interest rates to boost its economy.

     Could the falling dollar get out of hand? If the dollar falls too far, investors might lose confidence in US investments—especially the government bond market. The money to finance the federal budget and trade deficits could migrate elsewhere. Inflation could flare up, too, since Japanese and German manufacturers will eventually pass along price hikes—and US companies might follow suit to increase their profit margins. The US federal Reserve then might need to step in and stabilize the dollar by raising interest rates. And higher interest rates could cause the US economy to slow down and end the Wall Street Rally.

     Worried about these side effects, Federal Reserve Chairman Paul Volcher has said the dollar has fallen far enough. What is the equilibrium level? Probably near where it is or slightly lower. It all depends on when the US trade deficit turns around or if investors defect from US Treasury Bonds. “It requires a good deal of political patience on the part of the US Congress.” says Dr. Cline, “And there must be an expectation of patience on the part of private investors. The chances are relatively good that we will avoid an investor break or panic.”

45. What is the main idea of this passage?

   A. The impression of the falling US dollar.

   B. The result of the US falling dollar.

   C. The side effect of US falling dollar.

   D. Japan and West Germany are worried about US falling dollar.

46. What does the word “rally” mean?

   A. prosperity      B. decline          C. richness          D. import

47. Why are Japan and West Germany worried about the falling dollar?

   A. Because the falling dollar may cause inflation in their countries.

   B. Because it may force them to sell a lot of US stocks.

   C. Because it may do damage to their trade.

   D. Because it may make Japanese company less competitive.

48. If dollar-falling got out of hand, and the US Federal Reserve might step in, what would happen?

    A. The prosperity of the US economy would disappear.

    B. The US economy might face serious problems.

    C. Investors might lose confidence in US investments.

    D. Inflation could flare up.

(未完待续)