Important Comprehension Set – 55

1-8): Read the following passage carefully and answer the questions given below it.

On 23rd June, Britain will vote whether it wants to remain a part of the European Union (EU), or leave. A vote to leave the EU would start a long and complicated process that would result in a fundamental change in the UK’s relationship with other members of the EU. There are pros and cons for both parties. Increasing restrictions and introduction of political borders increases the cost of trade and services. Financial Times estimates the GDP hit to be at 2-7% with most of the losses front-loaded if Britain leaves the EU and fails to strike a deal or reverts into protectionism. On the other hand, as per an independent think-tank Open Europe, if the UK stays with the EU and manages to strike liberal trade agreements with the members, the benefits would be 1.6% of the GDP by 2030. The EU remains the largest market for Britain’s exports, constituting 40-45% of its exports. The UK’s primary goal is likely to be to retain access to the EU’s internal market but it will find it difficult to gain liberal trade terms from the EU if it chooses to exit the EU. Economic factors will hurt both the parties. Britain is a strong member of the EU and losing Britain will weaken the EU, both economically and politically. A Brexit could trigger capital flight from Britain. It could have a profound effect on London’s real estate market, among the most vibrant in the world. Stricter regulations will curb capital flows both from within the EU and outside it (read China & Russia). Brexit will only compound inflation and the sterling’s worries. Given London’s status as a global nerve centre outside New York, BREXIT could weaken the EU as far as it share in world trade and commerce is concerned. For Britain, separation from the EU will mean stricter immigration laws. It is pertinent to note that Britain has benefitted from the influx of skilled immigrants. The number of EU workers in Britain is now estimated at roughly 2.15 million. As per the OECD, immigration accounts for half of the UK’s growth since 2005 and immigrants have filed 2.2 million jobs since that period. Stricter immigration laws could make it difficult for EU skilled workers to work in UK. In my view, dollar assets will emerge as the biggest beneficiaries of Brexit. Events like these are usually followed by periods of volatility and economic pain. Given the current state of global economy, investors will be quick to rush to safer havens. Few asset classes can cope with capital flows of this magnitude. I believe that capital will flee to near-dated US Treasuries in the short term and will ultimately find its way into other dollar assets in the medium to longer term. As far as India is concerned, in the near term it will heighten global volatility thereby impacting capital flows and in medium term we will most likely be impacted through currency exchange. India has a substantial trading corridor with EU. Any material depreciation of the Euro/Pound could lead to increased headaches for India in a sluggish export environment. Indian businesses have a material presence in both the UK & Europe. As per The Guardian, there are more than 800 Indian-owned businesses in the UK, with more than 110,000 employees. Besides, Brexit, could also endanger the flow of investment and personnel by diminishing Britain’s role in providing access to Europe. Brexit, if it happens, will have implications; UK Real estate prices may correct (on account of thinner capital flows from EU), inflation will climb on expensive imports, London’s financial centre status may get threatened if money flow and settlements are hampered. Goldman Sachs estimates 15-20% drop in the sterling as a response to Brexit. The long-term economic impact of Brexit is hard to discern, but the short term disruption while the UK negotiates and renegotiates is only likely to be bad news for both sterling and Euro assets. It is difficult to gauge the precise medium to long-term economic impact of Brexit on both the parties concerned. However, the outcome of Brexit, in my view, is the biggest macro risk affecting fund managers and investors – bigger than oil price or even the Fed rate hike. Having said that, at this moment, it is almost impossible to predict the outcome. We will have to wait till June 23rd to know the future of EU and Britain.

1) What are the consequences faced by the U.K because of Brexit?

I) Reduction of the adept work force in the U.K.

II) After 2005 immigration accounts for half of UK’s growth.

III) Immigrants from EU will find it difficult to work in UK.

a) Both II and III

b) Both III and II

c) Both I and III

d) Only II

e) All the above

2) “capital flight”- what does this phrase imply?

a) Regression in the capital funding.

b) Insecure capital and savings.

c) Instability in politics.

d) Exodus of finance and capital.

e) None of the above.

3) What are the drawbacks of Brexit according to the author?

I) Drop in EU share in world trade.

II) Plunge in sterling and pound.

III) Upward Inflation relating to expensive imports.

a) Only II

b) Both II and I

c) Both III and I

d) Both II and III

e) All the above.

4) Which of the following is not mentioned in the passage?

a) Fund managers and investors are under risk in the upshot of Brexit.

b) Brexit will lead to uncertain long-term economic impact to both the parties.

c) U.K’s real estate market is dynamic in nature.

d) The E.U. says Britain must pay a hefty divorce bill which will cover E.U. staff pensions and other expenses the U.K have committed to.

e) All the above statements are mentioned in the passage.

5) Which of the following is false according to the passage?

a) After Brexit, UK is likely to renounce the EU market.

b) Brexit will weaken the EU both economically and politically.

c) GDP rate of the U.K. will be affected if Brexit is triggered.

d) If UK leaves EU, it will have effects in the relationship with the other EU members.

e) All the given statements are true.

6) What is the tone of the passage?

a) Regret.

b) Callous.

c) Statistical.

d) Whimsical.

e) Absurd.

7) Choose the word which is MOST SIMILAR in meaning to the word printed in bold as used in the passage.

HAMPERED

a) Facilitate.

b) Expedite.

c) Acquiesce.

d) Impede.

e) Comfort.

8) Choose the word which is MOST SIMILAR in meaning to the word printed in bold as used in the passage.

SLUGGISH

a) At a snail’s pace.

b) Perceptive.

c) Full of Vigour.

d) Engrossed.

e) Eloquent.