IIFT-2010 English comprehension Question Paper Passage 7 (Ordering Sentences)

Kodak decided that traditional film and prints would continue to dominate through the 1980s and that photo finishers, film retailers, and, of course, Kodak itself could expect to continue to occupy their long-held positions until 1990. Kodak was right and wrong. The quality of digital cameras greatly improved. Prices plunged because the cameras generally followed Moore’s Law, the famous prediction by Intel co-founder Gordon Moore in the 1960s that the cost of a unit of computing power would fall by 50 percent every eighteen to twenty-four months. Cameras began to be equipped with what the industry called removable media -those little cards that hold the pictures – so pictures were easier to print or to move to other devices, such as computers. Printers improved. Their costs dropped, too. The Internet caught the popular imagination, and people began e-mailing each other pictures rather than print them. Kodak did little to ready itself for the onslaught of digital technology because it consistently tried to hold on to the profits from its old technology and underestimated the speed with which the new would take hold. Kodak decided it could use digital technology to enhance film, rather than replace it. Instead of preparing for the digital world, Kodak headed off in a direction that cost it dearly. In 1988, Kodak bought Sterling Drug for $5.1 billion. Kodak had decided it was really a chemicals business, not a photography company. So, Kodak reasoned, it should move into adjacent chemical markets, such as drugs. Well, chemically treated photo paper really isn’t that similar to hormonal agents and cardiovascular drugs. The customers are different. The delivery channels are different. Kodak lost its shirt. It sold Sterling in pieces in 1994 for about half the original purchase price. George M. C. Fisher was the new CEO of Kodak in 1993. Fisher’s solution was to hold on to the film business as long as possible, while adding a technological veneer to it. For instance, he introduced the Advantix Preview camera, a hybrid of digital and film technology. Users took pictures the way they always had, and the images were captured on film. Kodak spent more than $500 million developing Advantix, which flopped.

Fisher also tried to move Kodak’s traditional retail photo-processing systems into digital world and in this regard installed tens of thousands of image magic kiosks. These kiosks came just as numerous companies introduced inexpensive, high- quality photo printers that people could use at home, which, in fact, is where customers preferred to view their images and fiddle with them. Fisher also tried to insert Kodak as an intermediary in the process of sharing images electronically. He formed partnerships that let customers receive electronic versions of their photos by e-mail and gave them access to kiosks that let them manipulate and reproduce old photographs. You don’t need Kodak to upload photos to your computer and e-mail them. Fisher also formed a partnership with AOL called “You’ve Got Pictures.” Customers would have their film developed and posted online, where friends and family could view them. Customers would pay AOL $7 for this  privilege, on top of the $9 paid for photo processing. However sites like, Snapfish were allowing pictures to be posted online free. Fisher promised early on, that Kodak’s digital-photography business would be profitable by 1997. It wasn’t. In 1997 Philippe Kahn lead the advent of cell phone camera. With the cell phone camera market growth Kodak didn’t just lose out on more prints. The whole industry lost out on sales of digital cameras, because they became just a feature that was given away free on cell phones. Soon cameras became a free feature on many personal computers, too. What had been so profitable for Kodak for so long-capturing images and displaying them-was going to become essentially free.

In 1999 Fisher resigned and Carp became the new CEO. In 2000, Carp’s first year as CEO, profit was about flat, at $1.41 billion. Carp, too, retired early, at age fifty-seven. Carp had pursued Fisher’s basic strategy of “enhancing” the film business to make it last as long as possible, while trying to figure out some way to get recurring revenue from the filmless, digital world. But the temporizing didn’t work any better for Carp than it had for Fisher. Kodak talked, for instance, about getting customers to digitize and upload to the Internet more of the 300 million rolls of film that Kodak processed annually, as of 2000. Instead, customers increasingly skipped the film part. In 2002, sales of digital cameras in the United States passed those of traditional cameras-even though Kodak in the mid- 1990s had projected that it would take twenty years for digital technology to eclipse film. The move to 100. Match the following digital in the 2000s happened so fast that, in 2004, Kodak introduced a film camera that won a “camera of the year” award, yet was discontinued by the time Kodak collected the award. Kodak staked out a position as one of the major sellers of digital cameras, but being “one of is a lot different from owning 70 percent to 80 percent of a market, as Kodak had with film, chemicals, and processing. In 2002 competition in the digital market was so intense that Kodak lost 75 percent of its stock market value over the past decade, falling to a level about half of what it was when the reporter suggested to Carp that he might sell the company. As of 2005, Kodak employed less than a third of the number who worked for it twenty years earlier. To see what might have been, look at Kodak’s principal competitors in the film and paper markets. Agfa temporized on digital technology, then sold its film and paper business to private-equity investors in 2004. The business went into bankruptcy proceedings the following year, but that wasn’t Agfa’s problem. It had cashed out at a halfway reasonable price.


Arrange the given statements in the correct sequence as they appear in the passage.

Kodak lost to its competitors a big pie of its market share.

Kodak ventured into chemical business to strengthen its digital technology business.

III. Kodak downsized its workforce drastically.

Kodak tied up with business firms for photo processing.

(a)   I, II, III, IV

(b)   III, IV, II, I

(c)   II, IV, I, III

(d)   I, III, II, IV

Ans: ()

(Source: IIFT-2010)

IIFT-2012 English comprehension Question Paper Passage 14 (Usage of Synonym Antonym)

The first thing I learned at school was that some people are idiots; the second thing I learned was that some are even worse. I was still too young to grasp that people of breeding were meant to affect innocence of this fundamental distinction. and that the same courtesy applied to any disparity that might rise out of religious. racial, sexual class, financial and (latterly) cultural difference. So in my innocence I would raise my hand every time the teacher asked a question, just to make it clear I knew the answer.

After some months of this, the teacher and my classmates must have been vaguely aware I was a good student, but still I felt the compulsion to raise my hand. By now the teacher seldom called on me, preferring to give other children a chance to speak, too. Still my hand shot up without my even willing it, whether or not l knew the answer. If I was putting on airs, like someone who even in ordinary clothes, adds a gaudy piece of jewellery, it’s also true that I admired my teacher and was desperate to cooperate.

Another thing I was happy to discover at school was the teacher’s ‘authority’. At home, in the crowded and disordered Pamuk Apartments, things were never so clear; at our crowded table, everyone talked at the same time. Our domestic routines, our love for one another, our conversations, meals and radio hours; these ‘were never debated — they just happened. My father held little obvious authority at home, and he was often absent. He never scolded my brother or me, never even raised his eyebrows in disapproval. In later years, he would introduce us to his friends as ‘my two younger brothers’, and we felt he had earned the right to say so. My mother was the only authority I recognised at home. But she was hardly a distant or alien tyrant: her power came from my desire to be loved by her. And so – I was fascinated by the power my teacher wielded over her twenty-five pupils.

Perhaps I identified my teacher with my mother, for I had an insatiable desire for her approval. ‘Join your arms together like this and sit down quietly,’ she would say, and I would press my arms against my chest and sit patiently all through the lesson. But gradually the novelty wore off; soon it was no longer exciting to have every answer or solve an arithmetic problem ahead of everyone else or earn the highest mark; time began to flow with painful slowness, or stop flowing altogether.

Turning away from the fat, half-witted girl who was writing on the blackboard, who gave everyone — teachers, school caretakers and her classmates — the same vapid, trusting smile, my eyes would float to the window, to the upper branches of the chestnut tree that I could just see rising up between the apartment buildings. A crow would land on a branch. Because I was viewing it from below, I could see the little cloud floating behind it — as it moved, it kept changing shape: first a fox’s nose, then a head, then a dog. I didn’t want it to stop looking like a dog, but as it continued its journey it changed into one of the fourlegged silver sugar bowls from my grandmother’s always—locked display case, and I’d long to be at home. Once I’d conjured up the reassuring silence of the shadows of home, my father would step out from them, as if from a dream, and off we’d go on a family outing to the Bosphorus. Just then, a window in the apartment building opposite would , open, a maid would shake her duster and gaze absentmindedly at the street that I could not see from where I was sitting. What was going down there? I’d wonder. I’d hear a horse cart rolling over the cobblestones, and a rasping voice would cry out ‘Eskiciiiiiii! The maid would watch the junk dealer make his way down the street before pulling her head back inside and shutting the window behind her, but then, right next to that window, moving as fast as the first cloud but going in the opposite direction, I’d see a second cloud. But now my attention was called back to the classroom, and seeing all the other raised hands, I would eagerly raise my hand too: long before I worked out from my classmates’ responses what the teacher had asked us, I was foggily confident I had the answer.

It was exciting, though sometimes painful, to get to know my classmates as individuals, and to find out how different they were from me. There was that sad boy who, whenever he was asked to read out loud in Turkish class, would skip every other line; the poor boy’s mistake was as involuntary as the  laughter it would elicit from the class. In first grade, there was a girl who kept her red hair in a ponytail, who sat next to me for a time. Although her bag was a slovenly jumble of half-eaten apples, simits, sesame seeds, pencils and hair bands, it always smelled of dried lavender around her, and that attracted me; I was also drawn to her for speaking so openly about the little taboos of daily life, and if I didn’t see her at the weekend, I missed her, though there was another girl so tiny and delicate that I was utterly entranced by her as well. Why did that boy keep on telling lies even knowing no one was going to believe him‘? How could that girl be so indiscreet about the goings-on in her house? And could this other girl be shedding real tears as she read that poem about Ataturk?’

Just as I was in the habit of looking at the fronts of cars and seeing noses, so too did I like to scrutinize my classmates, looking for the creatures they resembled. The boy with the pointed nose was a fox and the big one next to him was, as everyone said, a bear, and the one with the thick hair was a hedgehog… I remember a Jewish girl called Mari telling us all about Passover — there were days when no one in her grandmother’s house was allowed to touch the light switches. Another girl reported that one evening, when she was in her room, she turned around so fast she glimpsed the shadow of an angel — a fearsome story that stayed with me. There was a girl with very long legs who wore very long socks and always looked as if she was about to cry; her father was a government minister and when he died in a plane crash from which Prime Minister Menederes emerged without a scratch, I was sure she’d been crying because she had known in advance what was going to happen. Lots of children had problems with their teeth; a few wore braces. On the top floor of the building that housed the lycée dormitory and the sports hall, just next to the infirmary, there was rumoured to be a dentist, and when teachers got angry they would often threaten to send naughty children there. For lesser infractions pupils were made to stand in the corner between the blackboard and the door with their backs to the class, sometimes one leg, but because we were all so curious to see how long someone could stand on one leg, the lessons suffered, so this particular punishment was rare.

[LDAdvQuiz 1548]

(Source: IIFT-2012)

IIFT-2008 English comprehension Question Paper Passage 32 (Level 2)

We now come to the second part of our journey under the sea. The first ended with the moving scene in the coral cemetery which left a deep impression on my mind. I could no longer content myself with the theory which satisfied Conseil. That  worthy fellow persisted in seeing in the Commander of the Nautilus one of those unknown servants who returns mankind contempt for indifference. For him, he was a misunderstood genius who, tired of earth’s deceptions, had taken refuge in this inaccessible medium, where he might follow his instincts freely. To my mind, this explains but one side of Captain Nemo’s character. Indeed, the mystery of that last night during which we had been chained in prison, the sleep, and the precaution so violently taken by the Captain of snatching from my eyes the glass I had raised to sweep the horizon, the mortal wound of the man, due to an unaccountable shock of the Nautilus, all put me on a new track. No; Captain Nemo was not satisfied with shunning man. His formidable apparatus not only suited his instinct of freedom, but perhaps also the design of some terrible retaliation.

That day, at noon, the second officer came to take the altitude of the sun. I mounted the platform, and watched the operation. As he was taking observations with the sextant, one of the sailors of the Nautilus (the strong man who had accompanied us on our first submarine excursion to the Island of Crespo) came to clean the glasses of the lantern. I examined the fittings of the apparatus, the strength of which was increased a hundredfold by lenticular rings, placed similar to those in a lighthouse, and which projected their brilliance in a horizontal plane. The electric lamp was combined in such a way as to give its most powerful light. Indeed, it was produced in vacuo, which insured both its steadiness and its intensity. This vacuum economized the graphite points between which the luminous arc was developed – an important point of economy for Captain Nemo, who could not easily have replaced them; and under these conditions their waste was imperceptible. When the Nautilus was ready to continue its submarine journey, I went down to the saloon. The panel was closed, and the course marked direct west.


From the 21st to the 23rd of January the Nautilus went at the rate of two hundred and fifty leagues in twenty four hours, being five hundred and forty miles, or twenty-two miles an hour. If we recognized so many different varieties of fish, it was because, attracted by the electric light, they tried to follow us; the greater part, however, were soon distanced by our speed, though some kept their place in the waters of the Nautilus for a time. The morning of the 24th, we observed Keeling Island, a coral formation, planted with magnificent cocos, and which had been visited by Mr. Darwin and Captain Fitzroy. The Nautilus skirted the shores of this desert island for a little distance. Soon Keeling Island disappeared from the horizon, and our course was directed to the northwest in the direction of the Indian Peninsula.

From Keeling Island our course was slower and more variable, often taking us into great depths. Several times they made use of the inclined planes, which certain internal levers placed obliquely to the waterline. I observed that in the upper regions the water was always colder in the high levels than at the surface of the sea. On the 25th of January the ocean was entirely deserted; the Nautilus passed the day on the surface, beating the waves with its powerful screw and making them rebound to a great height. Three parts of this day I spent on the platform. I watched the sea. Nothing on the horizon till about four o’clock then there was a steamer running west on our counter. Her masts were visible for an instant, but she could not see the Nautilus, being too low in the water. I fancied this steamboat belonged to the P.O. Company, which runs from Ceylon to Sydney, touching at King George’s Point and Melbourne.

At five o’clock in the evening, before that fleeting twilight which binds night to day in tropical zones, Conseil and I were astonished by a curious spectacle. It was a shoal of Argonauts travelling along on the surface of the ocean. We could count several hundreds. These graceful molluscs moved backwards by means of their locomotive tube, through which they propelled the water already drawn in. Of their eight tentacles, six were elongated, and stretched out floating on the water, whilst the other two, rolled up flat, were spread to the wing like a light sail. I saw their spiral-shaped and fluted shells, which Cuvier justly compares to an elegant skiff. For nearly an hour the Nautilus floated in the midst of this shoal of molluscs.

The next day, 26th of January, we cut the equator at the eighty-second meridian and entered the northern hemisphere. During the day a formidable troop of sharks accompanied us. They were “cestracio philippi” sharks, with brown backs and whitish bellies, armed with eleven rows of teeth, their throat being marked with a large black spot surrounded with white like an eye. There were also some Isabella sharks, with rounded snouts marked with dark spots. These powerful creatures often hurled themselves at the windows of the saloon with such violence as to make us feel very insecure. But the Nautilus, accelerating her speed, easily left the most rapid of them behind.

About seven o’clock in the evening, the Nautilus, halfimmersed, was sailing in a sea of milk. At first sight the ocean seemed lactified. Was it the effect of the lunar rays? No; for the moon, scarcely two days old, was still lying hidden under the horizon in the rays of the sun. The whole sky, though lit by the sidereal rays, seemed black by contrast with the whiteness of the waters. Conseil could not believe his eyes, and questioned me as to the cause of this strange phenomenon. Happily I was able to answer him.

“It is called a milk sea,” I explained. “A large extent of white waves is often to be seen on the coasts of Amboyna, and in these parts of the sea.”

“But, sir,” said Conseil, “can you tell me what causes such an effect? For I suppose the water is not really turned into milk.”

“No, my boy; and the whiteness which surprises you is caused only by the presence of myriads of luminous little worm, gelatinous and without colour, of the thickness of a hair, and whose length is not more than seven-thousandths of an inch. These insects adhere to one another sometimes for several leagues.”

“Several leagues!” exclaimed Conseil.




1. Find the TRUE Sentence:

(A) According to the narrator, the abovementioned journey was taking place during full moon period 

(B) According to Conseil, the Captain of the Nautilus in which they were travelling was really a brilliant person, a fact which had been corroborated by many people 

(C) It is implied from the passage that although the author was witnessing many interesting events during their journey, he was not always having his way 

(D) From the chronicle, it is understood that the Nautilus was in the vicinity of the Island of Crespo on the 25 of January 

Answer: (C)

2. Find the FALSE sentence:

(A) After entering the Northern Hemisphere, the narrator witnessed several sea creatures, including several varieties of sharks, who kept bumping on the windows of the submarine 

(B) On 25th January, the second officer of Nautilus came to the platform for measuring the altitude of the sun and for that purpose took observations with the sextant. 

(C) After January 24th, Nautilus started travelling at a relatively reduced speed, and some of the time it was going further away from the sea surface. 

(D) The course of Nautilus took them near the Keeling Island, which had earlier been visited by Mr. Darwin and Captain Fitzroy 

Answer: (B)

3.Match the following:

1. Molluscs i. Colourless

2. Sharks ii. Tentacles

3. Infusia iii. Coco

4. Coral iv. Snouts

(A) ii, 2-iv, 3-i, 4-iii 

(B) iii, 2-i, 3- iv, 4-ii 

(C) iv, 2-iii, 3-ii, 4-i 

(D) iii, 2-ii, 3-iv, 4-i. 

Answer: (A)

4. Find the TRUE statement:

(A)  During 22nd to 24th of January, Nautilus was travelling at the rate of two hundred and fifty leagues in twenty-four hours, which means a speed of twenty-two miles an hour 

(B) On 26th January for approximately an hour the narrator witnessed a shoal of molluscs, and he enjoyed watching their spiral-shaped and fluted shells 

(C)  On the 25th of January the narrator came across a steamboat, which was owned by PO Company, which travels between Ceylon to Sydney 

(D) The electric lamp of the submarine was an example of efficiency and effective fixtures 

Answer: (D)

(Source: IIFT-2008)

IIFT-2008 English comprehension Question Paper Passage 31 (Level 2)

My comrade and I had been quartered in Jamaica, and from there we had been drafting off to the British settlement of Belize, lying away west and north of the Mosquito Coast. At Belize there had been great alarm of one cruel gang of pirates (there were always more pirates than enough in those Caribbean Seas), and as they got the better of our English cruisers by running into out-of-the-way creeks and shallows, and taking the land when they were hotly pressed, the governor of Belize had received orders from home to keep a sharp look-out for them along shore. Now, there was an armed sloop came once a year from Port Royal, Jamaica, to the Island, laden with all manner of necessaries to eat, and to drink, and to wear, and to use in various ways; and it was aboard of that sloop which had touched at Belize, that I was standing, leaning over the bulwarks.

The Island was occupied by a very small English colony. It had been given the name of Silver-Store. The reason of its being so called, was, that the English colony owned and worked a silver-mine over on the mainland, in Honduras, and used this Island as a safe and convenient place to store their silver in, until it was annually fetched away by the sloop. It was brought down from the mine to the coast on the backs of mules, attended by friendly local people and guarded by white men; from thence it was conveyed over to Silver-Store, when the weather was fair, in the canoes of that country; from Silver-Store, it was carried to Jamaica by the armed sloop once a-year, as I have already mentioned; from Jamaica, it  went, of course, all over the world.

How I came to be aboard the armed sloop is easily told. Four-and-twenty marines under command of alieutenant – that officer’s name was Linderwood – had been told off at Belize, to proceed to Silver-Store, in aid of boats and seamen stationed there for the chase of the Pirates. The Island was considered a good post of observation against the pirates, both by land and sea; neither the pirate ship nor yet her boats had been seen by any of us, but they had been so much heard of, that the reinforcement was sent. Of that party, I was one. It included a corporal and a sergeant. Charker was corporal, and the sergeant’s name was Drooce. He was the most tyrannical noncommissioned officer in His Majesty’s service.

The night came on, soon after I had had the foregoing words with Charker. All the wonderful bright colours went out of the sea and sky in a few minutes, and all the stars in the Heavens seemed to shine out together, and to look down at themselves in the sea, over one another’s shoulders, millions deep.

Next morning, we cast anchor off the Island. There was a snug harbour within a little reef; there was a sandy beach; there were cocoa-nut trees with high straight stems, quite bare, and foliage at the top like plumes of magnificent green feathers; there were all the objects that are usually seen in those parts, and I am not going to describe them, having something else to tell about.

Great rejoicings, to be sure, were made on our arrival. All the flags in the place were hoisted, all the guns in the place were fired, and all the people in the place came down to look at us. One of the local people had come off outside the reef, to pilot us in, and remained on board after we had let go our anchor.

My officer, Lieutenant Linderwood, was as ill as the captain of the sloop, and was carried ashore, too. They were both young men of about my age, who had been delicate in the West India climate. I thought I was much fitter for the work than they were, and that if all of us had our deserts, I should be both of them rolled into one. (It may be imagined what sort of an officer of marines I should have made, without the power of reading a written order. And as to any knowledge how to command the sloop—Lord! I should have sunk her in a quarter of an hour!)

However, such were my reflections; and when we men were ashore and dismissed, I strolled about the place along with Charker, making my observations in a similar spirit.

It was a pretty place: in all its arrangements partly South American and partly English, and very agreeable to look at on that account, being like a bit of home that had got chipped off and had floated away to that spot, accommodating itself to circumstances as it drifted along. The huts of the local people, to the number of five- and-twenty, perhaps, were down by the beach to the left of the anchorage. On the right was a sort of barrack, with a South American Flag and the Union Jack, flying from the same staff, where the little English colony could all come together, if they saw occasion. It was a walled square of building, with a sort of pleasure-ground inside, and inside that again a sunken block like a powder magazine, with a little square trench round it, and steps down to the door.

Charker and I were looking in at the gate, which was not guarded; and I had said to Charker, in reference to the bit like a powder magazine, “That’s where they keep the silver you see;” and Charker had said to me, after thinking it over, “And silver ain’t gold. Is it, Gill?”


1. Find out the TRUE statement:

(A) During the time of the narration, the total number of pirates at Belize was much more than the same in the Caribbean Seas 

(B) From the accounts presented here, when the narrator of the passage made the journey he already happened to be an experienced sailor with considerable navigating experiences 

(C) The author and his friends used to consider Drooce as the most authoritarian noncommissioned officer in Her Majesty’s service 

(D) While walking with Charker, the narrator came across a barrack like structure where all the English settlers could assemble and stay together, if there was any necessity for doing so 

Answer: (D)

2. Find out the FALSE statement:

(A) According to the passage, the silver that was being stored in the place where the author went to was being mined in Honduras 

(B) The narrator noted that the silver was being transported from the mine to the coast on the backs of mules, after which it was being sent to Jamaica in a sloop, from where it was reaching various destinations. 

(C) Although the sea-voyage near Belize was being threatened by the presence of one notorious pirate fleet, the captain of the patrolling ship was accompanied by less than thirty soldiers. 

(D) The Island the author talks here about was considered to be a good point for surveillance against the pirates both by land and sea. 

Answer: (C)

3. Find out the TRUE Statement:

(A) The author was initially staying in Jamaica, which is located in the West and North of the Mosquito Coast 

(B) A casual review of the place by the narrator revealed that the store for keeping the silver was heavily guarded, fearing a possible pirate attack anytime 

(C) The narrator and his companion noticed the South American Flag and the Union Jack flying on the port office 

(D) When the ship entered the harbour, both its Captain and Lieutenant Linderwood was unwell as the West Indian climate was not suiting them 

Answer: (D)

4. Mark the FALSE statement:

(A) It was being difficult to capture the pirates because they either used to hide in uncommon waters whenever the patrolling ships were pursuing them or used to disembark and flee whenever severely chased 

(B) The local canoes were employed by the miners to bring the silver from the coast to the island during favourable climatic condition 

(C) The lifestyle of the island was not exactly British as it had to adjust itself with the local South American culture, but the same seemed quite delightful for the narrator and his company 

(D) When Corporal Charker and Sergeant Gill were walking around the harbour, they noticed that the size of the settlement of the local people was not very large 

Answer: (D)

(Source: IIFT-2008)

IIFT-2008 English comprehension Question Paper Passage 30 (Level 2)

Turning the business involved more than segmenting and pulling out of retail. It also meant maximizing every strength we had in order to boost our profit margins. In re-examining the direct model, we realized that inventory management was not just core strength; it could be an incredible opportunity for us, and one that had not yet been discovered by any of our competitors.

In Version 1.0 the direct model, we eliminated the reseller, thereby eliminating the mark-up and the cost of maintaining a store. In Version 1.1, we went one step further to reduce inventory inefficiencies. Traditionally, a long chain of partners was involved in getting a product to the customer. Let’s say you have a factory building a PC we’ll call model #4000. The system is then sent to the distributor, which sends it to the warehouse, which sends it to the dealer, who eventually pushes it on to the consumer by advertising, “I’ve got model #4000. Come and buy it.” If the consumer says, “But I want model #8000,” the dealer replies, “Sorry, I only have model #4000.” Meanwhile, the factory keeps building model #4000s and pushing the inventory into the channel.

The result is a glut of model #4000s that nobody wants. Inevitably, someone ends up with too much inventory, and you see big price corrections. The retailer can’t sell it at the suggested retail price, so the manufacturer loses money on price protection (a practice common in our industry of compensating dealers for reductions in suggested selling price). Companies with long, multi-step distribution systems will often fill their distribution channels with products in an attempt to clear out older targets. This dangerous and inefficient practice is called “channel stuffing”. Worst of all, the customer ends up paying for it by purchasing systems that are already out of date.

Because we were building directly to fill our customers’ orders, we didn’t have finished goods inventory devaluing on a daily basis. Because we aligned our suppliers to deliver components as we used them, we were able to minimize raw material inventory. Reductions in component costs could be passed on to our customers quickly, which made them happier and improved our competitive advantage. It also allowed us to deliver the latest technology to our customers faster than our competitors.

The direct model turns conventional manufacturing inside out. Conventional manufacturing, because your plant can’t keep going. But if you don’t know what you need to build because of dramatic changes in demand, you run the risk of ending up with terrific amounts of excess and obsolete inventory. That is not the goal. The concept behind the direct model has nothing to do with stockpiling and everything to do with information. The quality of your information is inversely proportional to the amount of assets required, in this case excess inventory. With less information about customer needs, you need massive amounts of inventory. So, if you have great information – that is, you know exactly what people want and how much – you need that much less inventory. Less inventory, of course, corresponds to less inventory depreciation. In the computer industry, component prices are always falling as suppliers introduce faster chips, bigger disk drives and modems with ever-greater bandwidth. Let’s say that Dell has six days of inventory. Compare that to an indirect competitor who has twenty-five days of inventory with another thirty in their distribution channel. That’s a difference of forty-nine days, and in forty-nine days, the cost of materials will decline about 6 percent.

Then there’s the threat of getting stuck with obsolete inventory if you’re caught in a transition to a nextgeneration product, as we were with those memory chip in 1989. As the product approaches the end of its life, the manufacturer has to worry about whether it has too much in the channel and whether a competitor will dump products, destroying profit margins for everyone. This is a perpetual problem in the computer industry, but with the direct model, we have virtually eliminated it. We know when our customers are ready to move on technologically, and we can get out of the market before its most precarious time. We don’t have to subsidize our losses by charging higher prices for other products.

And ultimately, our customer wins. Optimal inventory management really starts with the design process. You want to design the product so that the entire product supply chain, as well as the manufacturing process, is oriented not just for speed but for what we call velocity. Speed means being fast in the first place. Velocity means squeezing time out of every step in the process.

Inventory velocity has become a passion for us. To achieve maximum velocity, you have to design your products in a way that covers the largest part of the market with the fewest number of parts. For example, you don’t need nine different disk drives when you can serve 98 percent of the market with only four. We also learned to take into account the variability of the lost cost and high cost components. Systems were reconfigured to allow for a greater variety of low-cost parts and a limited variety of expensive parts. The goal was to decrease the number of components to manage, which increased the velocity, which decreased the risk of inventory depreciation, which increased the overall health of our business system.

 In effect, we got stronger with each transition and more competitive with each turn of the crank. We were increasing our productivity and improving our cash flow in a broader range of products in larger and larger markets. Unlike that period in 1993, when every day the news got a little worse, now, finally, every day the news was better and better.

We were also able to reduce inventory well below the levels anyone thought possible by constantly challenging and surprising ourselves with the result. We had our internal skeptics when we first started pushing for ever-lower levels of inventory. I remember the head of our procurement group telling me that this was like “flying low to the ground 300 knots.” He was worried that we wouldn’t see the trees.

In 1993, we had $2.9 billion in sales and $220 million in inventory. Four years later, we posted $12.3 billion in sales and had inventory of $33 million. We’re now down to six days of inventory and we’re starting to measure it in hours instead of days. Once you reduce your inventory while maintaining your growth rate, a significant amount of risk comes from the transition from one generation of product to the next. Without traditional stockpiles of inventory, it is critical to precisely time the discontinuance of the older product line with the ramp-up in customer demand for the newer one. Since we were introducing new products all the time, it became imperative to avoid the huge drag effect from mistakes made during transitions. E&O – short for “excess and obsolete” – became taboo at Dell. We would debate about whether our E&O was 30 or 50 cent per PC. Since anything less than $20 per PC is not bad, when you’re down in the cents range, you’re approaching stellar performance.


1. Find out the TRUE statement:

(A) According to the passage, the working of the direct model was being heavily exploited by all players in the software business 

(B) Analysis of the supply chain of the product reveals that the product is sent to the warehouse by the dealer, and any delay at that stage leads to an obvious increase in cost 

(C) The nature of the computer industry is such that the production decision at factory level is usually undertaken after getting the customer demand feedback from the distributors 

(D) Whenever the production of some old fashioned model of a product by a company exceeds the existing demand, the market forces create a downward pressure on its prices 

Answer: (D)

2.Find out the FALSE statement:

(A) The company mentioned in the passage could attain efficiency on raw material inventory management because they were procuring components only in line with their timely requirement 

(B) Generally the more the amount of quality information about the consumer needs and the market a firm possess, the less is its inventory requirement 

(C) In order to serve the market more efficiently, the firm mentioned here reconfigured their computers with increased proportion of low cost parts and a fewer types of high-priced parts 

(D) The conventional manufacturing system always ensured that no competitor can lower prices to reduce profit margins for everybody 

Answer: (D)

3. Choose the option which best matches the following sets:

1. Inventory i. Precarious

2. Conventional Manufacturing ii. Warehouse

3. Distributor iii. Stockpile

4. Market iv. Velocity

(A) 1 – iv, 2 – ii, 3 – i, 4 – iii 

(B) 1 – iii, 2 – i, 3 – iv, 4 – ii 

(C) 1 – iv, 2 – iii, 3 – ii, 4 – i 

(D) 1 – iii, 2 – ii, 3 – iv, 4 – i 

Answer: (C)

4. Find out the FALSE Statement:

(A) Having less amount of inventory is better in the computer industry as with time better quality components with enhanced capacity reach the market with lower price 

(B) Before improving the inventory management system under the direct model, the firm first removed the reseller from its marketing model, which contributed in its cost-cutting attempt 

(C) The efficient inventory management allowed the firm to enhance productivity as well as the flexibility to enter or exit a market 

(D) The companies with long distribution network incorporate information-gathering process within their systems which enable them to market products with latest available technologies 

Answer: (D)

(Source: IIFT-2008)

IIFT-2009 English comprehension Question Paper Passage 29 (Level 2)

“All raw sugar comes to us this way. You see, it is about the color of maple or brown sugar, but it is not nearly so pure, for it has a great deal of dirt mixed with it when we first get it.”

“Where does it come from?” inquired Bob.

“Largely from the plantations of Cuba and Porto Rico. Toward the end of the year we also get raw sugar from Java, and by the time this is refined and ready for the market the new crop from the West Indies comes along. In addition to this we get consignments from the Philippine Islands, the Hawaiian Islands, South America, Formosa, and Egypt. I suppose it is quite unnecessary to tell you young men anything of how the cane is grown; of course you know all that.”

“I don’t believe we do, except in a general way,” Bob admitted honestly. “I am ashamed to be so green about a thing at which Dad has been working for years. I don’t know why I never asked about it before. I guess I never was interested. I simply took it for granted.”

“That’s the way with most of us,” was the superintendent’s kindly answer. “We accept many things in the world without actually knowing much about them, and it is not until something brings our ignorance before us that we take the pains to focus our attention and learn about them. So do not be ashamed that you do not know about sugar raising; I didn’twhen I was your age. Suppose, then, I give you a little idea of what happens before this raw sugar can come to us.”

“I wish you would,” exclaimed both boys in a breath.

“Probably in your school geographies you have seen pictures of sugar-cane and know that it is a tall perennial not unlike our Indian corn in appearance; it has broad, flat leaves that sometimes measure as many as three feet in length, and often the stalk itself is twenty feet high. This stalk is jointed like a bamboo pole, the joints being about three inches apart near the roots and increasing in distance the higher one gets from the ground.”

“How do they plant it?” Bob asked.

“It can be planted from seed, but this method takes much time and patience; the usual way is to plant it from cuttings, or slips. The first growth from these cuttings is called plant cane; after these are taken off the roots send out ratoons or shoots from which the crop of one or two years, and sometimes longer, is taken. If the soil is not rich and moist replanting is more frequently necessary and in places like Louisiana, where there is annual frost, planting must be done each year. When the cane is ripe it is cut and brought from the field to a central sugar mill, where heavy iron rollers crush from it all the juice. This liquid drips through into troughs from which it is carried to evaporators where the water portion of the sap is eliminated and the juice left; you would be surprised if you were to see this liquid. It looks like nothing so much as the soapy, bluish-gray dish-water that is left in the pan after the dishes have been washed.”

“A tempting picture!” Van exclaimed.

“I know it. Sugar isn’t very attractive during its process of preparation,” agreed Mr. Hennessey. “The sweet liquid left after the water has been extracted is then poured into vacuum pans to be boiled until the crystals form in it, after which it is put into whirling machines, called centrifugal machines that separate the dry sugar from the syrup with which it is mixed. This syrup is later boiled into molasses. The sugar is then dried and packed in these burlap sacks such as you see here, or in hogsheads, and shipped to refineries to be cleansed and whitened.”

“Isn’t any of the sugar refined in the places where it grows?”

queried Bob.

“Practically none. Large refining plants are too expensive to be erected everywhere; it therefore seems better that they should be built in our large cities, where the shipping facilities are good not only for receiving sugar in its raw state but for distributing it after it has been refined and is ready for sale. Here, too, machinery can more easily be bought and the business handled with less difficulty.”


1. Which one of the following is not a essential condition for setting up sugar refining plants?

(A) Facilities for transportation of machinery 

(B) Facilities for import of raw material 

(C) Facilities for transportation of finished products 

(D) Proximity to the raw material sources 

Answer: (D)

2. Which of the following is the correct sequence of sugar preparation process?

(A) Cutting → Crushing → Evaporation → Boiling → Whirling. 

(B) Boiling → Crushing → Evaporation → Whirling → Cutting 

(C) Cutting → Boiling → Evaporation → Crushing → Whirling 

(D) Whirling → Crushing → Boiling → Evaporation → Cutting 

Answer: (A)

3. Which of the following statements, as per the paragraph, is incorrect?

(A) Sugar in its raw from is brownish in colour due to the presence of dirt 

(B) After evaporation, cane juice looks bluish – gray in colour 

(C) Molasses is obtained as a bye-product from the process of sugar production 

(D) Cane plantation and sugar production process is widely and equally spread across the countries 

Answer: (D)

(Source: IIFT-2009)

IIFT-2009 English comprehension Question Paper Passage 28 (Level 2)

The broad scientific understanding today is that our planet is experiencing a warming trend over and above natural and normal variations that is almost certainly due to human activities associated with large-scale manufacturing. The process began in the late 1700s with the Industrial Revolution, when manual labor, horsepower, and water power began to be replaced by or enhanced by machines. This revolution, over time, shifted Britain, Europe, and eventually North America from largely agricultural and trading societies to manufacturing ones, relying on machinery and engines rather than tools and animals.

The Industrial Revolution was at heart a revolution in the use of energy and power. Its beginning is usually dated to the advent of the steam engine, which was based on the conversion of chemical energy in wood or coal to thermal energy and then to mechanical work primarily the powering of industrial machinery and steam locomotives. Coal eventually supplanted wood because, pound for pound, coal contains twice as much energy as wood (measured in BTUs, or British thermal units, per pound) and because its use helped to save what was left of the world’s temperate forests. Coal was used to produce heat that went directly into industrial processes, including metallurgy, and to warm buildings, as well as to power steam engines. When crude oil came along in the mid- 1800s, still a couple of decades before electricity, it was burned, in the form of kerosene, in lamps to make light replacing whale oil. It was also used to provide heat for buildings and in manufacturing processes, and as a fuel for engines used in industry and propulsion.

In short, one can say that the main forms in which humans need and use energy are for light, heat, mechanical work and motive power, and electricity which can be used to provide any of the other three, as well as to do things that none of those three can do, such as electronic communications and information processing. Since the Industrial Revolution, all these energy functions have been powered primarily, but not exclusively, by fossil fuels that emit carbon dioxide (CO2), To put it another way, the Industrial Revolution gave a whole new prominence to what Rochelle Lefkowitz, president of Pro-Media Communications and an energy buff, calls “fuels from hell” – coal, oil, and natural gas. All these fuels from hell come from underground, are exhaustible, and emit CO2 and other pollutants when they are burned for transportation, heating, and industrial use. These fuels are in contrast to what Lefkowitz calls “fuels from heaven” -wind, hydroelectric, tidal, biomass, and solar power. These all come from above ground, are endlessly renewable, and produce no harmful emissions.

Meanwhile, industrialization promoted urbanization, and urbanization eventually gave birth to suburbanization. This trend, which was repeated across America, nurtured the development of the American car culture, the building of a national highway system, and a mushrooming of suburbs around American cities, which rewove the fabric of American life. Many other developed and developing countries followed the American model, with all its upsides and downsides. The result is that today we have suburbs and ribbons of highways that run in, out, and around not only America s major cities, but China’s, India’s, and South America’s as well. And as these urban areas attract more people, the sprawl extends in every direction.

All the coal, oil, and natural gas inputs for this new economic model seemed relatively cheap, relatively inexhaustible, and relatively harmless-or at least relatively easy to clean up afterward. So there wasn’t much to stop the juggernaut of more people and more development and more concrete and more buildings and more cars and more coal, oil, and gas needed to build and power them. Summing it all up, Andy Karsner, the Department of Energy’s assistant secretary for energy efficiency and renewable energy, once said to me: “We built a really inefficient environment with the greatest efficiency ever known to man.”

Beginning in the second half of the twentieth century, a scientific understanding began to emerge that an excessive accumulation of largely invisible pollutants-called greenhouse gases – was affecting the climate. The buildup of these greenhouse gases had been under way since the start of the Industrial Revolution in a place we could not see and in a form we could not touch or smell. These greenhouse gases, primarily carbon dioxide emitted from human industrial, residential, and transportation sources, were not piling up along roadsides or in rivers, in cans or empty bottles, but, rather, above our heads, in the earth’s atmosphere. If the earth’s atmosphere was like a blanket that helped to regulate the planet’s temperature, the CO2 buildup was having the effect of thickening that blanket and making the globe warmer.

Those bags of CO2 from our cars float up and stay in the atmosphere, along with bags of CO2 from power plants burning coal, oil, and gas, and bags of CO2 released from the burning and clearing of forests, which releases all the carbon stored in trees, plants, and soil. In fact, many people don’t realize that deforestation in places like Indonesia and Brazil is responsible for more CO2 than all the world’s cars, trucks, planes, ships, and trains combined – that is, about 20 percent of all global emissions. And when we’re not tossing bags of carbon dioxide into the atmosphere, we’re throwing up other greenhouse gases, like methane (CH4) released from rice farming, petroleum drilling, coal mining, animal defecation, solid waste landfill sites, and yes, even from cattle belching. Cattle belching? That’s right-the striking thing about greenhouse gases is the diversity of sources that emit them. A herd of cattle belching can be worse than a highway full of Hummers. Livestock gas is very high in methane, which, like CO2, is colorless and odorless. And like CO2, methane is one of those greenhouse gases that, once released into the atmosphere, also absorb heat radiating from the earth’s surface. “Molecule for molecule, methane’s heat-trapping power in the atmosphere is twenty-one times stronger than carbon dioxide, the most abundant greenhouse gas..” reported Science World (January 21, 2002). “With 1.3 billion cows belching almost constantly around the world (100million in the United States alone), it’s no surprise that methane released by livestock is one of the chief global sources of the gas, according to the U.S. Environmental Protection Agency … ‘It’s part of their normal digestion process,’ says Tom Wirth of the EPA. ‘When they chew their cud, they regurgitate [spit up] some food to rechew it, and all this gas comes out.’ The average cow expels 600 liters of methane a day, climate researchers report.”

What is the precise scientific relationship between these expanded greenhouse gas emissions and global warming? Experts at the Pew Center on Climate Change offer a handy summary in their report “Climate Change 101. ” Global average temperatures, notes the Pew study, “have experienced natural shifts throughout human history. For example; the climate of the Northern Hemisphere varied from a relatively warm period between the eleventh and fifteenth centuries to a period of cooler temperatures between the seventeenth century and the middle of the nineteenth century. However, scientists studying the rapid rise in global temperatures during the late twentieth century say that natural variability cannot account for what is happening now.” The new factor is the human factor-our vastly increased emissions of carbon dioxide and other greenhouse gases from the burning of fossil fuels such as coal and oil as well as from deforestation, large-scale cattle-grazing, agriculture, and industrialization.

“Scientists refer to what has been happening in the earth’s atmosphere over the past century as the ‘enhanced greenhouse effect’”, notes the Pew study. By pumping manmade greenhouse gases into the atmosphere, humans are altering the process by which naturally occurring greenhouse gases, because of their unique molecular structure, trap the sun’s heat near the earth’s surface before that heat radiates back into space.

“The greenhouse effect keeps the earth warm and habitable; without it, the earth’s surface would be about 60 degrees Fahrenheit colder on average. Since the average temperature of the earth is about 45 degrees Fahrenheit, the natural greenhouse effect is clearly a good thing. But the enhanced greenhouse effect means even more of the sun’s heat is trapped, causing global temperatures to rise. Among the many scientific studies providing clear evidence that an enhanced greenhouse effect is under way was a 2005 report from NASA’s Goddard Institute for Space Studies. Using satellites, data from buoys, and computer models to study the earth’s oceans, scientists concluded that more energy is being absorbed from the sun than is emitted back to space, throwing the earth’s energy out of balance and warming the globe.”


1. Which of the following statements is correct?

(I) Greenhouse gases are responsible for global warming. They should be eliminated to save the planet

(II) CO2 is the most dangerous of the greenhouse gases. Reduction in the release of CO2 would surely bring down the temperature

(III) The greenhouse effect could be traced back to the industrial revolution. But the current development and the patterns of life have enhanced their emissions

(IV) Deforestation has been one of the biggest factors contributing to the emission of greenhouse gases

Choose the correct option:

(A) I and III 

(B) II and III 

(C) II, III, and IV 

(D) III and IV 

Answer: (D)

2. Which of the following statements is incorrect?

(A) Natural and controlled greenhouse effect is good for earth 

(B) As a measure to check global warming, prevention of destruction of forests needs to be given priority over reduction in fuel emission 

(C) Greenhouse gases trap the sun’s heat from radiating back into the space making the earth surface warmer 

(D) It is for the first time in human evolution that the global temperatures have started to witness a shift 

Answer: (D)

3. Increasing warming of earth has been due to:

(I) Increased manual intervention in the manufacturing process

(II) The fallout of mechanization of production

(III) Industrial revolution

(IV) Over reliance on non- replenishible energy sources

Choose the correct option:

(A) I, II, and IV 

(B) I, III and IV 

(C) I, II, III, and IV 

(D) II, III, and IV 

Answer: (D)

4. Which of the following according to the passage are the features of “fuels from heaven”?

(I) Replenishability

(II) Storability

(III) Cost-effectiveness

(IV) Harmlessness

(A)  I and II 

(B) II and III 

(C) III, and IV 

(D) I and IV 

Answer: (D)

(Source: IIFT-2009)

IIFT-2009 English comprehension Question Paper Passage 27 (Level 2)

I suggest that the essential character of the Trade Cycle and, especially, the regularity of time-sequence and of duration which justifies us in calling it a cycle, is mainly due to the way in which the marginal efficiency of capital fluctuates. The Trade Cycle is best regarded, I think, as being occasioned by a cyclical change in the marginal efficiency of capital, though complicated and often aggravated by associated changes in the other significant short period variables of the economic system.

By a cyclical movement we mean that as the system progresses in, e.g. the upward direction, the forces propelling it upwards at first gather force and have a cumulative effect on one another but gradually lose their strength until at a certain point they tend to be replaced by forces operating in the opposite direction; which in turn gather force for a time and accentuate one another, until they too, having reached their maximum development, wane and give place to their opposite. We do not, however, merely mean by a cyclical movement that upward and downward tendencies, once started, do not persist for ever in the same direction but are ultimately reversed. We mean also that there is some recognizable degree of regularity in the time-sequence and duration of the upward and downward movements. There is, however, another characteristic of what we call the Trade Cycle which our explanation must cover if it is to bead equate; namely, the phenomenon of the ‘crisis’ the fact that the substitution of a downward for an upward tendency often takes place suddenly and violently, whereas there is, as a rule, no such sharp turning-point when an upward is substituted for a downward tendency. Any fluctuation in investment not offset by a corresponding change in the propensity to consume will, of course, result in a fluctuation in employment. Since, therefore, the volume of investment is subject to highly complex influences, it is highly improbable that all fluctuations either in investment itself or in the marginal efficiency of capital will be of a cyclical character.

We have seen above that the marginal efficiency of capital depends, not only on the existing abundance or scarcity of capital-goods and the current cost of production of capital goods, but also on current expectations as to the future yield of capital-goods. In the case of durable assets it is, therefore, natural and reasonable that expectations of the future should play a dominant part in determining the scale on which new investment is deemed advisable. But, as we have seen, the basis for such expectations is very precarious. Being based on shifting and unreliable evidence, they are subject to sudden and violent changes. Now, we have been accustomed in explaining the ‘crisis’ to lay stress on the rising tendency of the rate of interest under the influence of the increased demand for money both for trade and speculative purposes. At times this factor may certainly play an aggravating and, occasionally perhaps, an initiating part. But I suggest that a more typical, and often the predominant, explanation of the crisis is, not primarily a rise in the rate of interest, but a sudden collapse in the marginal efficiency of capital. The later stages of the boom are characterized by optimistic expectations as to the future yield of capital goods sufficiently strong to offset their growing abundance and their rising costs of production and, probably, a rise in the rate of interest also. It is of the nature of organized investment markets, under the influence of purchasers largely ignorant of what they are buying and of speculators who are more concerned with forecasting the next shift of market sentiment than with a reasonable estimate of the future yield of capital-assets, that, when disillusion falls upon an over-optimistic and overbought market, it should fall with sudden and even catastrophic force. Moreover, the dismay and uncertainty as to the future which accompanies a collapse in the marginal efficiency of capital naturally precipitates a sharp increase in liquidity-preference and hence a rise in the rate of interest. Thus the fact that a collapse in the marginal efficiency of capital tends to be associated with a rise in the rate of interest may seriously aggravate the decline in investment. But the essence of the situation is to be found, nevertheless, in the collapse in the marginal efficiency of capital, particularly in the case of those types of capital which have been contributing most to the previous phase of heavy new investment. Liquidity preference, except those manifestations of it which are associated with increasing trade and speculation, does not increase until after the collapse in the marginal efficiency of capital. It is this, indeed, which renders the slump so intractable.


1. Which of the following does not describe the features of cyclical movement?

(A) There is a cyclical change in the marginal efficiency of capital 

(B) The movement once starts in upward or downward direction does not get reversed 

(C) The time pattern and the duration of economic movements are recognizable 

(D) It is caused by the economic force working in opposite direction 

Answer: (B)

2. Marginal efficiency of the capital does not depend on which of following factors?

(A) Demand and supply of capital goods 

(B) Cost of production of capital goods 

(C) Expectations regarding future return from capital goods 

(D) Availability of capital 

Answer: (D)

3. Which of the following explains the phenomenon of crisis?

I. A sudden collapse in the marginal efficiency of capital

II. Increase in the rate of interest causing the decline in investments

III. A sudden and violent substitution of upward movement by a downward tendency

IV. Decline in the liquidity preference of the investors

(A) I & II 

(B) I, II, and III 

(C) I, II, and IV 

(D) II, III, and IV 

Answer: (B)

(Source: IIFT-2009)

IIFT-2009 English comprehension Question Paper Passage 26 (Level 2)

The most important task is revitalizing the institution of independent directors. The independent directors of a company should be faithful fiduciaries protecting, the long term interests of shareholders while ensuring fairness to employees, investor, customer, regulators, the government of the land and society. Unfortunately, very often, directors are chosen based of friendship and, sadly, pliability. Today, unfortunately, in the majority of cases, independence is only true on paper.

The need of the hour is to strengthen the independence of the board. We have to put in place stringent standards for the independence of directors. The board should adopt global standards for director-independence, and should disclose how each independent director meets these standards. It is desirable to have a comprehensive report showing the names of the company employees of fellow board members who are related to each director on the board. This report should accompany the annual report of all listed companies. Another important step is to regularly assess the board members for performance. The assessment should focus on issues like competence, preparation, participation and contribution. Ideally, this evaluation should be performed by a third party. Underperforming directors should be allowed to leave at the end of their term in a gentle manner so that they do not lose face. Rather than being the rubber stamp of a company’s management policies, the board should become a true active partner of the management. For this, independent directors should be trained in their in their in roles and responsibilities. Independent directors should be trained on the business model and risk model of the company, on the governance practices, and the responsibilities of various committees of the board of the company. The board members should interact frequently with executives to understand operational issues. As part of the board meeting agenda, the independent directors should have a meeting among themselves without the management being present. The independent board members should periodically review the performance of the company’s CEO, the internal directors and the senior management. This has to be based on clearly defined objective criteria, and these criteria should be known to the CEO and other executive directors well before the start of the evolution period. Moreover, there should be a clearly laid down procedure for communicating the board’s review to the CEO and his/her team of executive directors. Managerial remuneration should be based on such reviews. Additionally, senior management compensation should be determined by the board in a manner that is fair to all stakeholders. We have to look at three important criteria in deciding managerial remuneration-fairness accountability and transparency. Fairness of compensation is determined by how employees and investors react to the compensation of the CEO. Accountability is enhanced by splitting the total compensation into a small fixed component and a large variable component. In other words, the CEO, other executive directors and the senior management should rise or fall with the fortunes of the company. The variable component should be linked to achieving the long-term objectives of the firm. Senior management compensation should be reviewed by the compensation committee of the board consisting of only the independent directors. This should be approved by the shareholders. It is important that no member of the internal management has a say in the compensation of the CEO, the internal board members or the senior management.

The SEBI regulations and the CII code of conduct have been very helpful in enhancing the level of accountability of independent directors. The independent directors should decide voluntarily how they want to contribute to the company. Their performance should decide voluntarily how they want to contribute to the company. Their performance should be appraised through a peer evaluation process. Ideally, the compensation committee should decide on the compensation of each independent director based on such a performance appraisal.

Auditing is another major area that needs reforms for effective corporate governance. An audit is the Independent examination of financial transactions of any entity to provide assurance to shareholder and other stakeholders that the financial statements are free of material misstatement. Auditors are qualified professionals appointed by the shareholders to report on the reliability of financial statements prepared by the management. Financial markets look to the auditor’s report for an independent opinion on the financial and risk situation of a company. We have to separate such auditing form other services. For a truly independent opinion, the auditing firm should not provide services that are perceived to be materially in conflict with the role of the auditor. These include investigations, consulting advice, sub contraction of operational activities normally undertaken by the management, due diligence on potential acquisitions or investments, advice on deal structuring, designing/implementing IT systems, bookkeeping, valuations and executive recruitment. Any departure from this practice should be approved by the audit committee in advance. Further, information on any such exceptions must be disclosed in the company’s quarterly and annual reports. To ensure the integrity of the audit team, it is desirable to rotate auditor partners. The lead audit partner and the audit partner responsible for reviewing a company’s audit must be rotated at least once every three to five years. This eliminates the possibility of the lead auditor and the company management getting into the kind of close, cozy relationship that results in lower objectivity in audit opinions. Further, a registered auditor should not audit a chief accounting office was associated with the auditing firm. It is best that members of the audit teams are prohibited from taking up  employment in the audited corporations for at least a year after they have stopped being members of the audit team.

A competent audit committee is essential to effectively oversee the financial accounting and reporting process. Hence, each member of the audit committee must be ‘financially literate’, further, at least one member of the audit committee, preferably the chairman, should be a financial expert-a person who has an understanding of financial statements and accounting rules, and has experience in auditing. The audit committee should establish procedures for the treatment of complaints received through anonymous submission by employees and whistleblowers. These complaints may be regarding questionable accounting or auditing issues, any harassment to an employee or any unethical practice in the company. The whistleblowers must be protected.

Any related-party transaction should require prior approval by the audit committee, the full board and the shareholders if it is material. Related parties are those that are able to control or exercise significant influence. These include;  parent subsidiary relationships; entities under common control; individuals who, through ownership, have significant influence over the enterprise and close members of their families; and dey management personnel.

Accounting standards provide a framework for preparation and presentation of financial statements and assist auditors in forming an opinion on the financial statements. However, today, accounting standards are issued by bodies comprising primarily of accountants. Therefore, accounting standards do not always keep pace with changes in the business environment. Hence, the accounting standards-setting body should include members drawn from the industry, the profession and regulatory bodies. This body should be independently funded.

Currently, an independent oversight of the accounting profession does not exist. Hence, an independent body should be constituted to oversee the functioning of auditors for Independence, the quality of audit and professional competence. This body should comprise a “majority of non practicing accountants to ensure independent oversight. To avoid any bias, the chairman of this body should not have practiced as an accountant during the preceding five years. Auditors of all public companies must register with this body. It should enforce compliance with the laws by auditors and should mandate that auditors must maintain audit working papers for at least seven years.

To ensure the materiality of information, the CEO and CFO of the company should certify annual and quarterly reports. They should certify that the information in the reports fairly presents the financial condition and results of operations of the company, and that all material facts have been disclosed. Further, CEOs and CFOs should certify that they have established internal controls to ensure that all information relating to the operations of the company is freely available to the auditors and the audit committee. They should also certify that they have evaluated the effectiveness of these controls within ninety days prior to the report. False certifications by the CEO and CFO should be subject to significant criminal penalties (fines and imprisonment, if willful and knowing). If a company is required to restate its reports due to material non-compliance with the laws, the CEO and CFO must face severe punishment including loss of job and forfeiting bonuses or equity-based compensation received during the twelve months following the filing.



The problem with the independent directors has been that:

I. Their selection has been based upon their compatibility with the company management

II. There has been lack of proper training and development to improve their skill set

III. Their independent views have often come in conflict with the views of company management. This has hindered the company’s decision-making process

IV. Stringent standards for independent directors have been lacking

(A) I and II only 

(B) I, II, and III only 

(C) II, II, and IV only 

(D) I, II and IV only 

Answer: (D)

2. Which of the following, according to author, does not have an impact on effective corporate governance?

(A)  Increased role and importance of independent directors 

(B) Increased compensation to independent directors 

(C) Not hiring audit firms for other services 

(D) Stringent monitoring and control of related party transactions 

Answer: (B)

3. To improve the quality and reliability of the information reported in the financial statements:

I. Accounting standards should keep pace with the dynamic business environment

II. There should be a body of internal auditors to oversee the functioning of external auditors

III. Reports should be certified by key company officials

IV. Accounting standards should be set by a body comprising of practicing accountants only and this body should be funded from a corpus built up from the contributions made by the companies

(A) I, and II 

(B) II, and III 

(C) I, and III 

(D) I, III, and IV 

Answer: (C)

4. Which of the following may not help in improving in the accountability of management to the shareholders?

(A) A third party assessment of the performance of independent directors 

(B) Rotation of audit partner 

(C) Increasing the fixed component in the salary structure of the management 

(D) Laying down a proper procedure for handling complaints regarding unethical practices 

Answer: (C)

5. The author of the passage does not advocate:

(A) Increased activism of independent directors 

(B) Measures to improve the independence of auditors 

(C) Framing the accounting standards in the light of changing business conditions 

(D) Active intervention by the regulators in the day-today functioning of the company 

Answer: (D)

(Source: IIFT-2009)

IIFT-2010 English comprehension Question Paper Passage 25 (Level 2)

In the annals of investing, Warren Buffett stands alone. Starting from scratch, simply by picking stocks and companies for investment, Buffett amassed one of the epochal fortunes of the twentieth century. Over a period of four decades more than enough to iron out the effects of fortuitous rolls of the dice, Buffett outperformed the stock market, by a stunning margin and without taking undue risks or suffering a single losing year. Buffett did this in markets bullish and bearish and through economies fat and lean, from the Eisenhower years to Bill Clinton, from the 1950s to the 1990s, from saddle shoes and Vietnam to junk bonds and the information age. Over the broad sweep of postwar America, as the major stock averages advanced by 11 percent or so a year, Buffett racked up a compounded annual gain of 29.2 percent. The uniqueness of this achievement is more significant in that it was the fruit of old-fashioned, long-term investing. Wall Street’s modern financiers got rich by exploiting their control of the public’s money: their essential trick was to take in and sell out the public at opportune moments. Buffett shunned this game, as well as the more venal excesses for which Wall Street is deservedly famous. In effect, he rediscovered the art of pure capitalism, a coldblooded sport, but a fair one. Buffett began his career, working out his study in Omaha in 1956. His grasp of simple verities gave rise to a drama that would recur throughout his life. Long before those pilgrimages to Omaha, long before Buffett had a record, he would stand in a corner at college parties, baby-faced and bright-eyed, holding forth on the universe as a dozen or two of his older, drunken fraternity brothers crowded around. A few years later, when these friends had metamorphosed into young associates starting out on Wall Street, the ritual was the same. Buffett, the youngest of the group, would plop himself in a big, broad club chair and expound on finance while the others sat at his feet. On Wall Street, his homespun manner made him a cult figure. Where finance was so forbiddingly complex, Buffett could explain it like a general-store clerk discussing the weather. He never forgot that underneath each stock and bond, no matter how arcane, there lay a tangible, ordinary business. Beneath the jargon of Wall Street, he seemed to unearth a street from small-town America. In such a complex age, what was stunning about Buffett was his applicability. Most of what Buffett did was imitable by the average person (this is why the multitudes flocked to Omaha). It is curious irony that as more Americans acquired an interest in investing, Wall Street became more complex and more forbidding than ever. Buffett was born in the midst of depression. The depression cast a long shadow on Americans, but the post war prosperity eclipsed it. Unlike the modern portfolio manager, whose mind-set is that of a trader, Buffett risked his capital on the long term growth of a few select businesses. In this, he resembled the magnates of a previous age, such as J P Morgan Sr. As Jack Newfield wrote of Robert Kennedy, Buffett was not a hero, only a hope; not a myth; only a man. Despite his broad wit, he was strangely stunted. When he went to Paris, his only reaction was that he had no interest in sight-seeing and that the food was better in Omaha. His talent sprang from his unrivaled independence of mind and ability to focus on his work and shut out the world, yet those same qualities exacted a toll. Once, when Buffett was visiting the publisher Katharine Graham on Martha’s Vineyard, a friend remarked on the beauty of the sunset. Buffett replied that he hadn’t focused on it, as though it were necessary for him to exert a deliberate act of concentration to “focus” on a sunset. Even at his California beachfront vacation home, Buffett would work every day for weeks and not go near the water. Like other prodigies, he paid a price. Having been raised in a home with more than its share of demons, he lived within an emotional fortress. The few people who shared his office had no knowledge of the inner man, even after decades. Even his children could scarcely recalra time when he broke through his surface calm and showed some feeling. Though part of him is a showman or preacher, he is essentially a private person. Peter Lynch, the mutual-fund wizard, visited Buffett in the 1980s and was struck by the tranquility in his inner sanctum. His archives, neatly alphabetized in metal filing cabinets, looked as files had in another era. He had no armies of traders, no rows of electronic screens, as Lynch did. Buffett had no price charts, no computer-only a newspaper clipping from 1929 and an antique ticker under a glass dome. The two of them paced the floor, recounting their storied histories, what they had bought, what they had sold. Where Lynch had kicked out his losers every few weeks. Buffett had owned mostly the same few stocks for years and years. Lynch felt a pang, as though he had traveled back in time. Buffett’s one concession to modernity is a private jet. Otherwise, he derives little pleasure from spending his fabulous wealth. He has no art collection or snazzy car, and he has never lost his taste for hamburgers. He lives in a commonplace house on a tree-lined block, on the same street where he works. His consuming passion—and pleasure—is his work, or, as he calls it, his canvas. It is there that he revealed the secrets of his trade, and left a self-portrait.

1. “Saddle shoes and Vietnam”, as expressed in the passage, refers to:

  1. Dernier cri and Vietnam war
  2. Growth of leather footwear industry and Vietnam shoe controversy
  3. Modern U.S. population and traditional expatriates
  4. Industrial revolution and Vietnam Olympics
  5. Fashion and Politics

(a)   I & V

(b)   II & IV

(c)   III & V

(d)   II & III

Ans: ()

2. Identify the correct sequence:

  1. Depression -> Eisenhower -> Microsoft
  2. California -> New York -> Omaha
  3. III. J.P.Morgan -> Buffett -> Bill Gates
  4. Mutual funds -> Hedge funds -> Brokers

(a)   I & II

(b)   I & III

(c)   II & IV

(d)   III & IV

Ans: ()

3. Choose the most appropriate answer: according to the author, Warren Buffett was

  1. Simple and outmoded
  2. Against planned economy and technology
  3. Deadpan
  4. Spiritually raw

(a)   I & IV

(b)   II & IV

(c)   III & IV

(d)   I & III

Ans: ()

(Source: IIFT-2010)