Directions: In the passage given below there are 10 blanks. Every blank has five alternative words given in options (A),(B),(C), (D) and (E). You have to tell which word is APPROPRIATE according to the context. Mark that inappropriate word as your answer.
YI GANG, a deputy governor of China’s central bank, ___1_ this week about shopping in Moscow in the 1980s. In the streets around Red Square, he said, visitors could find many big shops with identical low-quality goods. But among the ___2_ displays were a few Yugoslav and Polish stores with better selections. These countries had experimented with competition earlier than the Soviet Union and the results were visible on the shelves of their outposts in Moscow.
Banks, Mr Yi suggested, are no different from stores. If governments control them too tightly—as China has long done by dictating the interest rates they pay and charge—banks do not compete with each other and thus fail to develop the range of financial products their customers want and need. So on October 23rd, at the same time as cutting interest rates to support stuttering growth, the People’s Bank of China (PBOC) announced that it was setting banks free. They can now offer depositors whatever interest they like, at least in theory. That removes the last formal ___3_ on rates.
China has been slowly liberalising rates for well over a decade. First, it allowed banks to set lending rates above its benchmark. Then, it ___4_ the floor on lending rates too. In recent years, it started raising the ceiling on deposit rates.
The full liberalisation of interest rates should, in theory, change the face of China’s financial system. By keeping rates well below where they would have ___5_ in a free market, the government transferred wealth from savers to banks and to borrowers. Banks benefited because regulators created a large gap, about three percentage points, between savings and lending rates, guaranteeing them easy profits when turning deposits into loans. This made them rich but lazy. Borrowers did well because lending rates were also held artificially low, providing them with cheap credit to fuel China’s investment ___6_. But savers—workers ___7_ a share of their hard-earned wages in their accounts—earned paltry returns.
Rate liberalisation promises to reverse all this. Banks will have to work harder to make profits. Borrowers, facing higher rates, will have to be more ___8_ about their investments. Long-suffering households will start to bigger incomes from their savings. The reforms that have already been implemented have set this process in motion. After a decade of double-digit growth in profits, banks are barely making any money this year. Savers, meanwhile, have a greater ___9_ of options than ever, from certificates of deposit to wealth-management products.
Progress will be gradual, however. The central bank will continue to publish benchmark deposit and lending rates. Although banks are no longer obliged to stick to them, the big, state-owned ones that dominate the financial system tend to hew closely to official guidance. Eventually, the PBOC says (without specifying when), it will stop publishing benchmark rates. Its approach would then resemble that of its counterparts in developed countries, which seek to influence rates through their own borrowing and lending, rather than by decree.
Indeed, the PBOC is already moving in that direction. The seven-day bond repurchase rate (in effect, the interest it charges financial institutions that borrow cash for a week, using bonds as collateral) used to be very ___10_. Recently, the central bank has managed to flatten it out (see chart), creating what appears to be an anchor for short-term rates. The PBOC is certainly not bowing out altogether.
Explanation: mused = be absorbed in thought.
Explanation: drab = lacking brightness or interest; drearily dull.
Explanation: restriction = a limiting condition or measure, especially a legal one.
Explanation: eliminated = completely remove or get rid of (something).
Explanation: settled = resolve or reach an agreement about (an argument or problem).
Explanation: boom = the characteristic resonant cry of the bittern.
Explanation: stashing = store (something) safely in a hidden or secret place.
Explanation: discerning = recognize or find out.
Explanation: array = an impressive display or range of a particular type of thing.
Explanation: volatile = liable to change rapidly and unpredictably, especially for the worse.