The Wall Street Journal Education Program
Weekly Review & Quiz
Covering front-page articles from July 8-14, 2006
Professor Guide with Summaries Summer 2006
Developed by: Scott R. Homan Ph.D., Purdue University
Questions 1 – 12 from The First Section, Section A
The Great Giveaway
By JOHN HECHINGER and DANIEL GOLDEN
July 8, 2006; Page A1
http://online.wsj.com/article/SB115231824063001300.html
An American billionaire in his mid-seventies has decided to give away his fortune during
his lifetime. He wants to team up with the Bill and Melinda Gates Foundation to curb
infectious diseases in the Third World.
His name isn't Warren Buffett.
"If we give it away now, we're going to do a good job with it, instead of leaving it to
future generations of foundation folks," says Herbert M. Sandler, 74 years old. He and his
wife, Marion, intend to donate the $2 billion they expect from the sale of the California
savings and loan Golden West Financial Corp. before "we shuffle off this mortal coil."
The Sandlers' plan, like Mr. Buffett's $30 billion gift to the Gates foundation announced
last month, exemplifies the changing pattern of U.S. philanthropy -- and the Gates
organization's increasing influence over it. The charitable titans of today are unlike many
of the old-school business bluebloods who sought to immortalize their names by setting
up foundations that parceled out small gifts forever. Instead, some of America's
wealthiest moguls-turned-philanthropists -- Eli Broad, Charles Bronfman, Lawrence
Ellison, Michael Milken and Sanford Weill, among others -- favor spending money
faster, while retaining a high degree of control and demanding more accountability from
the programs they fund.
Led by Bill Gates, many in this generation of donors are tackling complex problems
overseas and the U.S., taking on responsibility for health-care, foreign aid and K-12
education. The growing presence of major foundations in these areas may drive
governmental funders and small nonprofits alike to shift funding to less popular
problems.
In a 2005 survey of 91 people with assets above $30 million by Boston College's Center
on Wealth and Philanthropy, 65% said they planned to donate more of their wealth
during their lifetimes than in their estates. "People realize you can't take it with you. It's a
lot better to do a lot of this philanthropy while you're still alive and you have the energy,"
says Mr. Weill, former Citigroup Inc. chief executive and chairman, who has given away
$600 million in the past 10 to 15 years. "We can use our brainpower to make the world a
better place now -- not to leave a bunch of money that will be around in 100 years. Being
the biggest foundation doesn't interest us at all."
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 1 of 37
These big new givers have the potential to reorder the priorities of charitable giving,
which totals $260 billion annually in the U.S. For now, religion and education receive
half that pie, while health care weighs in at 9%. In 2004, the Gates foundation devoted
$1.2 billion to international health -- the only U.S. foundation to spend more than $30
million on that cause. The new donors are as eager to make a dent in Third World infant
mortality rates as they are to have an arts center or university wing named after them.
They're willing to make big bets on a handful of charities they feel are most effective
rather than spreading the wealth.
They also want documented results. Intel Corp. co-founder Gordon Moore says the rise
of foundations established by engineers and scientists, such as himself and Mr. Gates, has
led to "a huge push toward measurability." The old idea, he says, was to choose the
recipients, "send them some money, and file reports when they come in." By contrast, his
$5 billion foundation, which spends $225 million a year on science, environmental
conservation and the San Francisco Bay Area, "puts a lot of effort into measuring things
that are difficult to measure." It funds both efforts to preserve the diversity of species -and a program that seeks to establish "baselines and protocols" to measure biodiversity.
"If you're making contributions to preserve biodiversity, how do you show that you're
actually preserving species? It's not easy to go out and count them every week," he says.
Oracle Corp.'s billionaire chief executive Lawrence Ellison shut down his medical
foundation's funding of research into infectious diseases in January 2005. Its work wasn't
having enough impact in a field where "every little bug has its own scientific
constituency," according to Richard Sprott, executive director of the foundation. Mr.
Ellison, who has given $175 million to the foundation over the past eight years, shifted
the $20 million a year he had been donating to infectious-disease research into studying
the biology of aging. Dr. Sprott says the foundation is funding cutting-edge science in
that field, such as applying embryonic stem-cell research to the aging process. The
Ellison Medical Foundation has no endowment; known as a "pass-through" foundation, it
spends all of the $40 million that Dr. Ellison gives it annually. "It lives only as long as
Larry is happy with what we do," says Dr. Sprott. Its five staff members are employed
under at-will contracts that either side may cancel.
A pass-through foundation on Ellison Medical's scale is unprecedented, said Sara
Engelhardt, president of the Foundation Center, which collects information on
philanthropy. Pass-through family foundations typically lack staff and give out less than a
million dollars per year. A. Jerrold Perenchio, chairman of Spanish-language media
company Univision Communications Inc., funds the second largest pass-through,
Chartwell Charitable Foundation in Los Angeles. Established in 1998, Chartwell donated
$10 million a year in 2005 to causes including Save the Children, the American Red
Cross, the Henry Mancini Institute and the Ronald Reagan Presidential Foundation.
Other donors are developing new vehicles for philanthropy as well. Both eBay Inc.
founder Pierre Omidyar and Google Inc. founders Sergey Brin and Larry Page have
launched entities that, unlike foundations, give to both for-profits and nonprofits. The
Omidyar Network, which includes a $200 million tax-exempt fund and a $200 million
tax-paying investment vehicle, has invested $80 million in the past two years. One-third
of the money has gone to initiatives in micro-finance, which typically involves small
loans to low-income people starting their own enterprises. A spokeswoman for Mr.
Omidyar said he plans to "deploy" the "lion's share" of his net worth -- estimated at $10
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 2 of 37
billion -- through Omidyar Network during his lifetime. Mr. Brin and Mr. Page have
pledged 1% of Google's equity and profits, amounting to a total of $1 billion, to tackle
global poverty, public health and climate change.
New York Mayor Michael Bloomberg, 64, the billionaire financial information titan, has
said he will trade politics for philanthropy when his term expires. Mr. Gates said at a
news conference in late June that his foundation will "find a way to partner" with Mr.
Bloomberg because they share interests in education and curbing malaria.
Causes supported by the new generation of donors are sometimes controversial. Some
conservatives have criticized CNN founder Ted Turner for donating $1 billion to the
United Nations, and investor George Soros for funding efforts to promote treatment
rather than jail for drug users. Nor does money guarantee progress. Math scores of
students at new and redesigned high schools funded by the Gates foundation are "on par
with or lagging behind" other schools in their districts, although reading scores show a
"positive trend," according to a 2005 report prepared for the foundation.
It won't be easy for these givers to match their predecessors' achievements. Established in
1911-12 with $135 million, at a time when the federal government only spent $690
million a year, Carnegie Corporation of New York helped found the field of library
science and provided universities with retirement money for professors, creating the
model for the Social Security system and retirement insurance generally. The Rockefeller
Foundation funded development of a yellow-fever vaccine and of higher-yielding strains
of wheat and rice that averted famine in Third World countries.
Bowing to Mr. Buffett's reputation for shrewd investing, some smaller-scale
philanthropists may give their assets to large foundations, until now an infrequent
practice. One outcome, philanthropy specialists say, could be a period of consolidation
that slows or reverses the recent proliferation of personal foundations. There are 68,000
foundations in the U.S., more than twice as many as in the 1990s.
Such consolidation would likely yield economies of scale, but also concentrate charitable
clout in the hands of a privileged few. Ms. Engelhardt of the Foundation Center predicts
Mr. Buffett's gift will inspire other people of wealth to donate to or form partnerships
with the Gates Foundation, creating a mega-institution that would be a major player in
world affairs. For its part, the Gates foundation says it isn't seeking more money and
encourages donors simply to give to the causes and organizations it favors. Mr. Buffett
"has been very clever with this move," says Intel's Mr. Moore. "He does not have to
worry about staffing a foundation. He picked one already working in areas that interest
him and that has a competent and aggressive management in place."
1. In a 2005 survey of 91 people with assets above $30 million by Boston College's
Center on Wealth and Philanthropy, ___________ said they planned to donate more of
their wealth during their lifetimes than in their estates.
a. 25%
b. 45%
c. 65% Correct
d. 85%
2. Established in 1911-12 with $135 million, at a time when the federal government only
spent $690 million a year, _____________ of New York helped found the field of library
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 3 of 37
science and provided universities with retirement money for professors, creating the
model for the Social Security system and retirement insurance generally.
a. Ford Corporation
b. Gates Corporation
c. Dell Corporation
d. Carnegie Corporation Correct
Storm Damage As Hurricane Season Begins, Disaster Insurance Runs Short
By LIAM PLEVEN, IAN MCDONALD and KAREN RICHARDSON
July 10, 2006; Page A1
http://online.wsj.com/article/SB115249681787202034.html
Last year's violent hurricanes continue to roil a vital corner of the insurance industry:
Demand for disaster coverage is far outstripping supply, and the consequences are
rippling through the economy.
The crunch isn't coming just because companies and individuals are buying more
insurance. Insurers themselves, anticipating future destructive storms, are trying to buy
more coverage on the policies they write -- a crucial segment of the business known as
reinsurance. But reinsurers, which also paid out billions last year, are wary of getting hit
hard again and have raised their rates substantially. Businesses and homeowners are
paying the price.
In late January, a private-equity fund called First Reserve Corp. discovered firsthand how
much the market has changed. The Greenwich, Conn., firm wanted to buy an oil-and-gas
platform in the Gulf of Mexico. During a conference call with colleagues in Houston, the
fund's executives learned that insuring the project would cost about $25 million a year,
not the $2 million they'd expected.
"That kind of shut the room up," says Mark McComiskey, a managing director at First
Reserve. The firm decided to kill the deal.
In the wake of Hurricane Katrina, billions of dollars poured into the insurance industry
from investors hoping to profit from rising premiums. After hard hurricane seasons, such
cash influxes often buoy insurers and help stabilize premiums.
But this time, the new capital was insufficient to soak up the increase in demand. "There's
just this loud sucking sound in the market now," says J.C. Sparling, an executive vice
president at Mercator Risk Services Inc., an insurance brokerage.
Disaster-insurance rates have risen so sharply that businesses with exposure to hurricanes
are canceling projects, paying more for whatever coverage they can get, and in some
cases, going without insurance altogether.
CDC Publishing LLC, a Vero Beach, Fla., firm that publishes construction-industry data,
says it's spending 12 times as much for hurricane insurance as it did last year. Pinnacle
Entertainment Inc., a Las Vegas-based hotel and gaming firm, cut its weather-catastrophe
coverage from $400 million to $100 million after suffering extensive damage at a Biloxi,
Miss., casino last year.
And Wal-Mart Stores Inc. said in May it would drop its coverage for severe windstorms
because it had become too expensive. Instead, the retailer will cover losses from such
storms out of its own pocket.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 4 of 37
Some insurance players are stepping into the void. Hedge funds and private-equity firms
are pouring billions of dollars into new and risky investment vehicles that provide capital
to back coverage for specific risks. In addition, Warren Buffett's Berkshire Hathaway Inc.
seems to be betting big on reinsurance even as other investors pull back.
"If you like to watch football, you probably enjoy the game a little more if you have a bet
on it," says Mr. Buffett. "I like to watch the Weather Channel."
3. CDC Publishing LLC, a Vero Beach, Fla., firm that publishes construction-industry
data, says it's spending ______ times as much for hurricane insurance as it did last year.
a. 4
b. 12 Correct
c. 25
d. 75
4. In May ________ said it would drop its coverage for severe windstorms because it
had become too expensive. Instead, the retailer will cover losses from such storms out of
its own pocket.
a. K-Mart
b. Sears
c. Target
d. Wal-Mart Correct
Nielsen Plans to Track Viewership of TV Commercials for First Time
By BRIAN STEINBERG and BROOKS BARNES
July 11, 2006; Page A1
http://online.wsj.com/article/SB115258347955103007.html
Nielsen Media Research, the firm that calculates national television ratings, plans to
answer one of advertising's most pressing questions: How many people actually watch
TV commercials?
In November, Nielsen will begin for the first time to provide formal ratings for
commercial breaks, a move with far-reaching implications for the fast-changing media
world.
Currently, Nielsen, a unit of Dutch media company VNU NV, provides ratings only for
individual TV programs in their entirety. Commercial prices are based on that overall
rating. The higher the rating of a particular show the more money a TV network can
charge advertisers for a spot shown during that program.
Both TV networks and advertisers expect the new Nielsen ratings will show that
viewership declines noticeably when a program breaks for commercials. A particularly
big drop could fuel advertisers' push for changes in how ads are incorporated into shows,
reinforcing demands for fewer or shorter ad breaks and lower ad rates. It could also
accelerate the flow of advertising dollars out of television to the Internet and new digital
media.
"Prices should go down," says Bruce Goerlich, executive vice president and director of
strategic resources at Publicis Groupe SA's ZenithOptimedia, a firm that buys advertising
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 5 of 37
time on behalf of corporate clients and other marketers. "If I was a buyer, I would be
taking the stance of, 'Quite frankly, what you said you were delivering, you weren't.' "
Television executives aren't likely to roll over, though. Jeff Zucker, chief executive of
General Electric Co.'s NBC Universal Television Group, says there's "no reason to
believe" the new ratings will put pressure on prices. "The bottom line is that there is still
no better way to reach a mass audience," he says.
Any softening of ad prices would be a big blow for the nation's TV networks and their
parent companies. Media stocks overall have been depressed in recent years as
technology has whipsawed the industry. Many big advertisers have already cut back on
traditional TV spots. General Motors Corp., for example, says its spending on 30-second
prime-time commercials declined by 50% in the five years between 2000 and 2005.
In the recently concluded "upfront" ad-sales negotiations, where major networks sold the
bulk of their ad time for the coming fall season, overall ad commitments fell slightly
compared with the previous year, which itself was down from the year before. Ad buyers
and sellers believe the new commercial ratings could help determine pricing for ad time
starting with next year's upfront session.
Since the industry's early days, networks and advertisers have debated how many people
watch the 30-second spots sprinkled throughout TV programs. Viewers have long used
commercial breaks to grab something to eat or change channels. Questions about the
effectiveness of commercials have increased in the past couple of years as digital video
recorders, or DVRs, such as TiVo, have become more popular, making it easier for
people to zip through the ad breaks in shows recorded earlier.
The new ad ratings, to be offered retroactively to the September start of the coming fall
TV season, will measure the average viewership for all the national commercial minutes
that run during a program. They won't track individual commercials or specific
commercial time slots.
The new ratings will be gathered the same way Nielsen compiles its existing TV ratings.
The firm will use set-top monitors in 10,000 Nielsen homes, checking viewers' TVs
several times per minute to determine what show is on. The monitors record whether
viewers are changing the channel during a commercial break or zapping through the
break with a DVR.
As for visits to the fridge or bathroom, Nielsen viewers are supposed to use another
device to record when they leave a room in which a set is playing. The system isn't
foolproof, but a Nielsen spokesman says the company believes more than 90% of its
viewers comply with this rule.
Finding new ways to measure consumer involvement with media is crucial for Nielsen.
Its CEO, Susan Whiting, has announced a flurry of initiatives to measure everything from
video playback on cellphones to TV viewing in sports bars. Although the company is the
sole provider of national TV ratings, it faces competition from a host of firms that survey
measures such as viewer response to ads.
The introduction of commercial ratings comes as advertisers and their agencies are
increasingly focused on measuring the results of the commercials they create. Advertising
has long been viewed as a game of chance, with marketers putting money into costly TV
commercials without any clear idea of whether the ads drive sales of their products or
yield greater recognition among consumers.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 6 of 37
But the Internet gives marketers the ability to determine the number of people who click
on an ad, sign up for a test drive at a local car dealership or choose to receive an email
newsletter. Ads on other emerging media outlets, such as cellphones and video on
demand, are also providing a measure of consumer response. TV, however, still
commands the largest share of ad dollars. In 2005, advertisers spent about $54 billion on
local, cable and network TV, according to TNS Media Intelligence.
"Proof of performance measures become one of the things that people can use to separate
the wheat from the chaff," says Jon Swallen, TNS Media Intelligence's senior vice
president of research.
Network executives argue that advertisers have long known some viewers stop watching
during commercial breaks and they say current ad prices reflect this. While Nielsen hasn't
previously provided ratings for commercials, it has provided networks with detailed
viewership data tracking programs minute-by-minute. Networks and advertisers have
been able to crunch this data to figure out how many people watched their commercials,
but these calculations were of limited use in ad negotiations because they weren't done in
a uniform fashion.
Networks say the new ratings could be good for them because they provide the hard
numbers advertisers have long sought. Mike Shaw, president of sales and marketing for
Walt Disney Co.'s ABC, says the new metric means networks can go to advertisers and
say, "Here is exactly who watched your commercial. They didn't graze. They didn't go to
other channels."
5. Nielsen Media Research, the firm that calculates national television ratings, plans to
answer one of advertising's most pressing questions: How many people actually watch
______________?
a. PGA Golf
b. Monday Night Football
c. TV commercials Correct
d. Beach Volleyball
6. General Motors says its spending on 30-second prime-time commercials declined by
_______ in the five years between 2000 and 2005.
a. 25%
b. 50%
c. 75% Correct
d. 78%
States and Towns Attempt to Draw The Line on Illegal Immigration
By MIRIAM JORDAN
July 12, 2006; Page A1
http://online.wsj.com/article/SB115266944904204220.html
As immigration legislation stalls in a divided Congress, states and towns across the nation
are taking matters into their own hands, pursuing a range of measures aimed at cracking
down on illegal immigrants.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 7 of 37
Driven in part by election-year pressures, politicians from Massachusetts to California are
drawing up laws and ordinances to limit illegal immigrants' access to jobs, housing and
government services. The officials argue that illegal residents are overburdening local
schools and hospitals and straining public finances.
This year, more than 500 pieces of immigration-related legislation have been introduced
in state legislatures, and 57 of them have been enacted in 27 states, according to the
National Conference of State Legislatures. In April, Georgia Gov. Sonny Perdue, a
Republican, signed into law a bill that will restrict public benefits and certain
employment rights for illegal immigrants, starting next year. On Monday, Colorado
legislators passed similar measures.
Last month, several Pennsylvania legislators introduced a package of bills that would,
among other things, prohibit public spending on services or benefits for illegal
immigrants. Several Pennsylvania towns are considering local sanctions against landlords
that rent to or businesses that employ such immigrants.
In Idaho, home to an estimated 19,000 illegal immigrants -- many employed in
meatpacking and construction -- Canyon County filed a racketeering lawsuit last year
against agribusiness companies and other employers accused of hiring them. The suit
sought to recover money the county said it spent on services for the immigrants. After a
federal judge threw out the case, county commissioners voted earlier this year to appeal
the ruling.
Even towns with relatively few immigrants are drafting pre-emptive measures. Officials
in Sandwich, Mass., a Cape Cod community of 24,000, where immigrants account for
just 3% of the population, endorsed a motion this week to declare the town "not a
sanctuary for illegal aliens" and to impose a $1,000 fine on businesses for each
undocumented immigrant they hire.
The grass-roots initiatives, which cut across party lines, come amid a standoff between
the House and Senate over differing versions of an immigration bill. The House version
calls for beefing up border enforcement and denying amnesty to illegal immigrants
already in the U.S.; the Senate version would put millions of illegals on the path to
citizenship. A compromise is considered unlikely this year.
Some of the state and local initiatives may run afoul of federal law and face legal
challenges from immigrant-advocacy groups. "These local measures are couched as
rental or trespassing laws," says Maria Blanco, an attorney at the Lawyers' Committee for
Civil Rights in San Francisco. "The bottom line is their motivation is to control
immigration, and that is within federal purview."
As more illegal immigrants journey beyond traditional gateways like the Southwest and
California to settle in states like Massachusetts and Georgia, local initiatives to crack
down on them are springing up in small towns and suburbs thousands of miles from the
U.S.-Mexico border. In many of those areas, the local impact of the influx is more
noticeable than in the urban centers or agricultural regions where illegal immigration has
long been a fact of life.
In the northeastern Pennsylvania town of Hazleton, population 31,000, Mayor Louis
Barletta introduced a proposal last month that calls for revoking permits granted to
businesses that employ illegal immigrants, imposing fines on landlords who rent to them
and making English the city's official language. The city council has given preliminary
approval to the initiative, and it is expected to pass this week.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 8 of 37
"We should be using tax dollars on legal taxpayers, not on illegal aliens," says Mr.
Barletta, a Republican, who has eliminated a $1.2 million deficit he inherited on taking
office in 2000.
Mr. Barletta, who says he doesn't know how many of his town's fast-growing Hispanic
community might be illegal immigrants, says the last straw for him was the murder of a
29-year-old Hazleton resident in May. The four suspects in custody are illegal
immigrants, he says. "Our police department worked 36 hours to apprehend these
individuals. We had hundreds of hours of overtime," he adds.
7. This year, more than 500 pieces of immigration-related legislation have been
introduced in state legislatures, and ______ of them have been enacted in 27 states,
according to the National Conference of State Legislatures.
a. 57 Correct
b. 83
c. 157
d. 307
8. Officials in Sandwich, Mass., a Cape Cod community of 24,000, where immigrants
account for just 3% of the population, endorsed a motion this week to declare the town
"not a sanctuary for illegal aliens" and to impose a _______fine on businesses for each
undocumented immigrant they hire.
a. $10
b. $100
c. $1,000 Correct
d. $10,000
Delicate Moment On Verge of Historic Rate Shift, Japan Bank Chief Faces Scandal
By YUKA HAYASHI
July 13, 2006; Page A1
http://online.wsj.com/article/SB115275079127805201.html
TOKYO -- Toshihiko Fukui, the Bank of Japan's genial, unassuming governor, can't
seem to stay away from scandal.
In 1998, he was a deputy governor contending for the top job. But an internal
investigation revealed that scores of BOJ officials had been entertained by the privatesector bankers they were supposed to regulate -- including at a type of restaurant where
panty-less waitresses served beef hot pots. Though not directly implicated, Mr. Fukui was
forced to "take responsibility" by resigning from the bank.
For the past month, the 70-year-old Mr. Fukui has been in trouble again. Before returning
to the BOJ as governor in 2003, he invested in a fund run by an aggressive manager. Last
month, the manager was arrested for insider trading, and Mr. Fukui acknowledged he had
made a $130,000 profit -- more than doubling his original investment. Though he broke
no laws and announced he was donating the money to charity, opinion polls show that the
public thinks he should resign again.
The latest scandal puts the spotlight on an institution in the throes of a crucial
transformation. Once viewed as a textbook study in bad policy-making, the BOJ has
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 9 of 37
gained much-needed credibility with the market for its recent handling of interest rates.
At the same time it has struggled to adapt to new ethical and cultural standards that
Japanese society is imposing on public servants.
Mr. Fukui and his team will need all the political capital and policy skills they can muster
in coming days. The BOJ is preparing to abandon a five-year emergency regime of zero
interest rates, a historic shift that many economists think could come as soon as
tomorrow. (See related article1.) The stakes are high, not just for Japan, but for the world.
If the BOJ moves too fast, it risks choking off Japan's promising economic recovery and
dragging down world financial markets. If the BOJ drags its feet, Japan could end up
with a repeat of the asset bubble that distorted global capital flows in the 1980s.
Most economists are betting the BOJ will steer a successful middle course. That's partly
due to a little-noted evolution in the central bank's role. In the past, policy was opaque
and led to tussles with the government ruling party. Now, the BOJ is more like other
major central banks. It is independent, after a 1998 law that removed the right of the
finance ministry to request policy changes or fire senior BOJ officials. Its policy board
now includes academic economists, who fuel lively debates. In March, it adopted what
amounts to an inflation target to increase transparency -- something even the Federal
Reserve has so far resisted. All these things make for clearer monetary policy that is less
likely to startle markets, confuse businesses and upset the economy.
"The BOJ's monetary policy has definitely moved back to the mainstream of central
banking," says Adam Posen, a senior fellow at the Institute for International Economics
in Washington and a long-term critic of the bank. He adds that the BOJ has been
"managing the market's expectations well."
The last time the bank raised rates, in 2000, the decision was disastrous, and Japan
became mired in deflation: The economy started to shrink, consumer prices and the stock
market fell, and hundreds of thousands of Japanese lost their jobs. This time, signs are
that things will go better. Partly that's because of Japan's revived economy -- growth is a
solid 3% or so, corporate profits are strong, and prices are rising, if modestly.
Better government is essential if Japan is to have a fighting chance of coping with a
shrinking population, huge national debt and increasingly powerful neighbors like China
and India. The changes at the BOJ are one element of a 20-year struggle to renovate the
Japanese policy establishment. Politicians are no longer as corrupt as they used to be,
bureaucrats are easing regulations, and financial markets are more open and clearly
regulated.
The changes at the BOJ are "an extension of a more scientific approach to policy" in
general, says Robert Feldman, Morgan Stanley's chief economist in Tokyo.
Japan's increasing economic integration with the rest of the world means this matters to
other countries. Because of low interest rates at home, wealthy Japanese investors plowed
money overseas where interest rates were higher. And speculative investors from around
the world have borrowed money at Japan's low rates and invested elsewhere. If the BOJ
tightens too aggressively, this money could be sucked out of global markets, battering
asset prices. Already, anticipation of monetary tightening in Japan helped prompt a
financial crisis in Iceland this year, after speculative investors suddenly withdrew their
funds.
William Gross, fund manager at Pacific Investment Management Co., warned investors
last month that tighter monetary policy in Japan could discourage global investors from
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 10 of 37
investing in "risk assets" such as emerging market stocks, high-yield bonds and housing.
"Watch the BOJ," was his advice.
The BOJ has traditionally conducted policy well in stable times, but made errors at
crucial turning points. During the 1970s, when much of the world was struggling with
inflation, the bank pulled off the feat of sustained price stability in a fast-expanding
economy.
But its reputation began to change after 1985, when Japan agreed to let the dollar
depreciate against the yen. The idea was to help reduce a growing U.S. trade deficit by
making U.S. goods cheaper for the Japanese. That threatened to hurt the profitability of
Japanese manufacturers by making their exported products more expensive overseas. So
the BOJ decided to help boost Japan's domestic demand -- both to help Japanese
manufacturers, and to suck in imports. It halved its short-term rate between 1986 and
1987 to 2.5% from 5%.
The result was exploding asset prices. The stock market tripled in value over four years,
while land prices in Tokyo rose even more. Satoshi Sumita, BOJ governor between 1984
and 1989, wrote later in a memoir: "We should have understood the meaning of the rise
in asset prices, and should have done something a bit sooner."
Then the BOJ reversed course. Over 15 months from May 1989, it raised rates by 3.5
percentage points in just five actions to 6%. Stock prices halved over the next three years,
and its new governor, Yasushi Mieno, became a target of harassment. He received razor
blades in the mail. Shin Kanemaru, the ruling political party's leading power broker,
demanded lower interest rates, "even if it means cutting off the governor's head" -- that is,
firing him.
When the BOJ flip-flopped again, it was too late and didn't have enough effect. By 1999,
the BOJ had set the target for its overnight call rate -- the rate at which banks lend to each
other, equivalent to the Federal Funds Rate -- at zero. But the Japanese economy still slid
into deflation. Even with mortgage rates as low as 2%, few consumers wanted to borrow
because they expected their own earning power to fall along with prices.
Japan became a case study for what can go wrong when bubbles are allowed to form and
then pricked too aggressively. When inflation dipped close to zero in the U.S. in 2002,
the Fed made sure it didn't repeat Japan's mistakes. It published a report, "Preventing
Deflation: Lessons from Japan's Experience in the 1990s." This concluded that the BOJ
had failed to foresee the bubble, and could have avoided deflation with an additional twopercentage-point cut in interest rates in the early 1990s.
The Japanese public increasingly saw the BOJ and the broader government as responsible
for their economic ills.
A big part of the economic problem was that banks had lent recklessly during the bubble
era, and now needed bailing out with government funds. Public anger reached a new level
when it was revealed in 1998 that hundreds of bureaucrats from the BOJ and the Ministry
of Finance had been entertained by private-sector bankers in exchange for special
treatment, such as pre-announcement tip-offs on economic indicators.
In their private language, central-bank officials classified some of the entertainment as
"splash," which referred to a casual restaurant. Others counted as "plunge" -- elaborate
multicourse meals at formal Japanese restaurants, sometimes including dancing and
music by geisha.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 11 of 37
A senior BOJ official was arrested for leaking confidential information in exchange for
such entertainment. Another was grilled in parliament, and then hanged himself. To
assuage the public, the BOJ cut executive salaries: The governor's annual pay was
reduced by nearly a quarter to around $400,000. It has since been reduced to around
$350,000 after criticism that it was still too high.
The BOJ became more like other modern central banks such as the Fed with a 1998
change in the BOJ Law aimed at making it more accountable. In an attempt to insulate
the bank from government interference, the law clearly stated the main purpose of the
central bank is to stabilize prices. But even this backfired at first. Reacting to past
aggressive interference by politicians, Masaru Hayami, the first governor to serve under
the new law, declared that the central bank "must be able to say no," and that being "hit
with stones" of criticism was a badge of honor.
9. The last time the Bank of Japan raised rates, in ______, the decision was disastrous,
and Japan became mired in deflation.
a. 1998
b. 2000 Correct
c. 2002
d. 2004
10. When inflation dipped close to zero in the U.S. in 2002, the Fed made sure it didn't
repeat Japan's mistakes. It published a report, "Preventing Deflation: Lessons from
Japan's Experience in the 1990s." This concluded that the BOJ had failed to foresee the
bubble, and could have avoided deflation with an additional _______ in interest rates in
the early 1990s.
a. 2 % cut Correct
b. 2 % increase
c. 4 % cut
d. 4 % increase
Under Pressure, Airbus Redesigns A Troubled Plane
By DANIEL MICHAELS and J. LYNN LUNSFORD
July 14, 2006; Page A1
http://online.wsj.com/article/SB115283988341806506.html
Nick Tomassetti, a retired Airbus executive, was fishing in the Gulf of Mexico in early
March when he received an urgent message from his former employer: Help us save the
A350.
Airbus's latest long-haul jetliner was failing with customers. Desperate to improve the
deteriorating economics of their industry, airlines said the plane lacked speed, comfort
and efficiency and were flocking to rival Boeing Co.'s 787 "Dreamliner." Within days,
Mr. Tomassetti had joined a crisis-management operation in France to redraw the A350
from scratch.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 12 of 37
Now Airbus is scrambling to unveil its faster and roomier plane at next week's
Farnborough Air Show, the year's most important industry gathering. Even if it does, it
remains to be seen whether airlines like the new jet enough for Airbus to start building
soon and avoid trailing Boeing for years to come.
The giant European plane maker faces this crisis because of two monumental business
mistakes: Lulled by years of success in an industry with only two big players, it ignored
the demands of its customers; and it underestimated arch-rival Boeing.
The A350, like the Dreamliner, is part of a new generation of airplanes that will carry the
bulk of long-haul travelers for the next 20 years -- a highly profitable market likely to top
6,000 planes during the period, at $150 million to $200 million each. At a time of high
fuel costs and plunging fares, the world's airlines are leaning heavily on manufacturers to
design faster, lighter planes.
The new A350 is an attempt to address these concerns. Details could change, but
according to a confidential Airbus marketing document, the new aircraft would match the
speed of Boeing's 787 and slightly exceed its range. The A350 cabin would become
slightly wider than the Dreamliner's, comfortably seating nine passengers in each row,
instead of eight in the original version. Airbus hopes to make the A350 in three different
sizes, in an effort to compete with the Dreamliner and another popular Boeing plane, the
larger twin-engine 777. Airbus may rename the plane the A370.
If Airbus doesn't officially launch the plane at Farnborough, executives could still
promise to pursue the project and start collecting expressions of interest from customers.
But that would fall short of committing to invest money and build the plane. Several
customers have indicated that if they don't like what they hear at Farnborough, they could
jump ship and head to Boeing.
"If they don't launch this plane, they will lose," says Tim Clark, chief executive of
Dubai's Emirates Airlines, a major Airbus customer. "How they handle the launch and
how much credibility they bring will be key."
When Boeing unveiled its 787 long-haul jet in 2003, Airbus didn't take its U.S. rival
seriously. Boeing had recently proposed two other projects and then dropped them. The
European plane maker had dominated the market for several years and thought its
momentum would continue.
But the Dreamliner, as Boeing dubbed it, made all Airbus models on the market look
outdated. The craft, slated for delivery in 2008, would be made largely of carbonenhanced plastic and propelled by new engines. This made the plane 20% more efficient
to operate than existing planes of its size. In addition, the Dreamliner was faster -airlines estimated it could fly from Los Angeles to Sydney up to an hour quicker than
competing Airbus models. And it had a bigger fuselage, or body, meaning it gave
passengers more headroom and more space between aisles.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 13 of 37
Airbus officials initially dismissed claims about the Dreamliner's economics as farfetched. Airbus Chief Operating Officer John Leahy, the company's top salesman, said all
Airbus needed to do to compete with the Dreamliner was refit the old A330 with new
engines.
The A350 was born, and immediately customers were dissatisfied. Compared with the
Dreamliner, the new Airbus plane was too slow, had a small cabin and was costlier to
operate because it didn't use new materials and technology. The A350's fuselage
essentially had the same dimensions and production system Airbus had used since 1972.
"We were really coming down hard on the A350, but we didn't feel like we were getting
their attention," says Steven Udvar-Hazy, chairman and chief executive of leasing giant
International Lease Finance Corp., the largest customer for both Airbus and Boeing.
Former Airbus CEO Gustav Humbert conceded during a news conference that Airbus
"underestimated" the Dreamliner.
Airbus soon began to pay the price. In April 2005, Air Canada announced plans to
replace its whole fleet of Airbus long-haul planes. It chose the Dreamliner and, impressed
by Boeing, it also ordered a batch of larger 777s.
The Air Canada win opened the floodgates for Boeing, which continued to bank orders
through the rest of 2005 for both 787s and 777s. Each Boeing sale underscored the
vulnerability of Airbus's offering in long-haul planes, which also included the A330 and
A340 models. It came as Airbus struggled with other problems. In April 2005, the
company announced that its giant A380, the world's largest passenger jet ever, had
completed a successful maiden flight. But it also said deliveries of the plane, a two-deck
superjumbo which seats 550 people, would be six months late. The delay was later
attributed to wiring difficulties.
Last month, Airbus surprised customers with another six-month delay of the superjumbo,
again because of wiring problems. The news sent the share price of Airbus parent
European Aeronautic Defence & Space Co. plunging 34% in a single day. Airbus and
EADS executives traded blame for a fortnight until Mr. Humbert and EADS co-CEO
Noel Forgeard resigned earlier this month.
Amid the superjumbo's embarrassing troubles last year, Airbus sales chief Mr. Leahy
struggled to close major deals for the A350. Top carriers, including Emirates and
Singapore Airlines, urged Airbus to compete more aggressively against the 787 by
increasing the A350's speed, widening its cabin and improving its fuel efficiency.
Through last summer and fall, the plane maker's engineers gave the plane a bit more
seating capability by transferring the space where pilots rest from the passenger deck to
an area in the belly below the cockpit. Airbus also simplified the plane's skeleton,
allowing for bigger overhead bins and a tad more elbow room.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 14 of 37
11. The new Boeing plane model slated for delivery in 2008, will be made largely of
carbon-enhanced plastic and propelled by new engines making it about 20% more
efficient to operate than existing planes of its size. The planes name is the ______.
a. 777 Dreamliner
b. 787 Dreamliner Correct
c. A350 Dreamliner
d. A380 Dreamliner
12. In April 2005, _____ announced plans to replace its whole fleet of long-haul planes.
a. Air Canada Correct
b. Delta
c. British Airways
d. TWA
Questions 13 – 17 from Marketplace
In Brazil, Ford Has Discovered 'Way Forward'
By GERALDO SAMOR
July 10, 2006; Page B1
http://online.wsj.com/article/SB115249305906701986.html
SÃO BERNARDO DO CAMPO, Brazil -- Ford Motor Co.'s Brazil unit here was
straining to succeed in 1999 as much as Detroit and the U.S. auto industry are struggling
today. After four consecutive years in the red, Ford had seen its market share in Brazil
slip to just 6.5%, fourth place behind rivals like General Motors Corp. Executives at the
company's Dearborn, Mich., headquarters were seriously considering pulling out of South
America.
Seven years later, Ford South America has become the company's biggest turnaround
story, accounting for $1 of every $5 Ford earned last year. What's more, in Brazil, the
biggest auto market in the region, Ford has doubled its share to 12%, even as rivals like
Honda Motor Co. and Toyota Motor Corp. have mounted new competition.
How Ford averted its near-closure in South America underscores two important business
lessons for Detroit at a time when the company is engaged in a make-or-break effort to
return to profitability and recover market share in the U.S. "What we can learn from
South America is a willingness to start with a clean sheet of paper," Chairman and Chief
Executive Bill Ford said in a recent interview.
The steps the company took in Brazil were basic but vital. First, Ford Brazil overhauled
manufacturing by closing inefficient plants -- a move that is now being mimicked by
Detroit -- and took a huge risk by opening a new, low-cost factory that now ranks among
Ford's most efficient. Second, Ford Brazil started making cars that were in synch with
consumer tastes. That is something Ford needs to do in North America, industry
consultants say.
"We made a choice for innovation," says Antonio Maciel, the former head of Ford Brazil
who presided over the turnaround before recently taking the top job at a Brazilian paper
manufacturer. "The U.S. can do even more than we did."
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 15 of 37
In some ways, Ford Brazil in the late 1990s was in worse shape than Ford USA is today.
After a manufacturing joint venture with Germany's Volkswagen AG was dismantled in
1995, Ford's unit here faced rising fixed costs and a dearth of new products. Its network
of dealers was in disarray, plagued by run-down showrooms and low morale. The
company was losing so much money that it considered pulling out of Brazil, where it has
been since 1919.
To get the attention of its Brazilian customers after years of missteps, Ford needed a
product to epitomize the new company it was trying to build. Like its rival auto makers
with a long presence in Brazil, such as Italy's Fiat SpA, GM and Volkswagen, Ford used
to sell Brazilians "tropicalized" versions -- Brazilian lingo for small adaptations -- of its
European models. For example, cars made for the Brazilian market typically have
reinforced suspension systems in order to handle the region's rugged roads.
On average, car makers kept a model in the Brazilian market for 20 years compared with
three to four in developed countries, says José Roberto Ferro, an industry consultant at
the Lean Institute in São Paulo. But after Brazil opened its market to imports in the early
1990s, Brazilians had become more demanding on things like design, performance and
comfort. They wanted more than makeovers of European models -- they wanted
homegrown cars.
13. In Brazil, Ford has expanded its market share to _______________ even as rivals like
Honda Motor Co. and Toyota Motor Corp. have mounted new competition.
a. 6%
b. 10%
c. 12% Correct
d. 18%
Office Tormentors May Appear Normal, But Pack a Wallop
By JARED SANDBERG
July 11, 2006; Page B1
http://online.wsj.com/article/SB115257176311702740.html
For 10 years after she left a job working for a woman who used to humiliate her, Kim
Potter, a claims manager at an insurance company, had nightmares. After law school, she
took a job at a law firm, working for a senior associate who called her "stupid" and
"incompetent" and said things like, "Can't you get anything right?" In one nightmare, she
was back at her old firm with her old boss. "She had me making the partners red beans
and rice instead of doing legal work," she recalls.
Ms. Potter's nightmares about her former humiliatrix also had contours of fear unabated
or vengeance never meted. Whenever Ms. Potter took a new job, she would dream that
her former boss started working there, too, only to rise as her tormentor again. Ms. Potter,
who says she hasn't come to blows in adulthood, also dreamed that though she punched
her old boss repeatedly, she was impervious.
"I've never been treated so shabbily in my life," she said of the real-life experience. "And
I never will."
Ms. Potter is probably right. Workplace humiliation has been around since history's first
angry tyrants flew off the handle. But public humiliation has become taboo at work,
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 16 of 37
indicting the humiliator more than the humiliated. Powerful forces work against it, such
as fear of liability and economics. As the handy productivity-measurement industry will
testify: Happy workers are good for the bottom line.
The problem is, humiliation has been driven underground, making it more subtle but no
less horrifying. It takes the shapeless form of tones of voice and "nasty looks" doled out
not by hotheads, but by seemingly normal people. The devil, it turns out, also wears
shoddy wing tips and down-market pumps.
"The crude and lewd person who does the public display are in the minority of
aggressors; most people are a lot more sophisticated," says Gary Namie, a social
psychologist. "They're not psychopaths."
That means that when victims complain, they aren't believed or are characterized as being
unable to handle criticism, he says.
Mr. Namie is the director of the Workplace Bullying & Trauma Institute, which is
pushing various states to enact laws against "abusive conduct," including "verbal or
physical conduct that a reasonable person would find threatening, intimidating, or
humiliating." Thus far, the bills either died in committee or weren't scheduled for
hearings, he says.
In a survey this year by Randstad USA, a temporary-staffing firm, 37% of respondents
called "public reprimand" among their biggest pet peeves, out-irritating them more than
micromanagers (34%), loud talkers (32%) and cellphones ringing (30%). The only thing
more annoying than public reprimand in the survey was "condescending tones" (44%),
arguably a humiliator's desert-island selection.
Richard Kilburg, senior director of the Office of Human Services at Johns Hopkins
University, notes that public humiliation still exists in the armed services and sports
(think end-zone dances) but has morphed into "private shaming games" in industry.
That includes infractions as subtle as how quickly someone answers your email, makes
eye contact or loads up some silence in a scenario like this: In a meeting, a woman
responds to her boss who gives her no response, yet minutes later applauds a male
colleague who said basically the same thing. "I hear that over and over again," Prof.
Kilburg says.
Still, these days, when people are confronted with the old-style Cro-Magnon
management, they are shocked. When John Ledbetter, president of oil exploration and
health resources company Nyvatex, was attending a conference roughly five years ago, a
staffer at another company presented information that didn't sit well with his supervisor.
He chewed him out afterward in front of all his colleagues. "That idea is so wrong it's not
even stupid," the boss yelled. "Genius has limits; you're proof that stupid doesn't."
"Isn't that vicious?" says Mr. Ledbetter, incredulous. "Today that would be a cause for
lawsuits!"
Jackie Fox once had a boss at a medical office who, whenever Ms. Fox forgot to do
something, would call her a "colander head." She quit that job, in part because the same
humiliator pressured her for her sandwich. These days, such hardships sound like the
office equivalent of shoeless walks to school.
Although consultant Gary Schmidt doesn't believe competent managers should have to
brandish their power in the form of humiliation, he has to admit, it sometimes works.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 17 of 37
When he was working for a large consulting firm, one of his managers used to police
people who blathered on with a deadpan: "You demonstrate a remarkable grasp of the
obvious."
His own tactics are subtler. He may say in a meeting, for example, "May I offer a
different perspective?"
Says Mr. Schmidt: "People who know me know that translates into, 'Are you out of your
freakin' mind?!' "
14. Public humiliation still exists in the armed services and sports (think end-zone
dances) but has morphed into ______ in industry.
a. “shoeless walks”
b. "private shaming games" Correct
c. “old-style Cro-Magnon management”
d. "illegal conduct"
Web Site Is a Prelude To Glaxo's OTC Weight-Loss Pill
By JEANNE WHALEN
July 12, 2006; Page B1
http://online.wsj.com/article/SB115265971508103950.html
Awaiting approval from U.S. regulators to sell an over-the-counter diet pill called Alli,
GlaxoSmithKline PLC has set out to establish itself as an online weight-loss authority,
with a Web site that offers dieting tips and collects data and email addresses from
consumers who visit.
The move is one of the first by a pharmaceutical company to tap into the vibrant online
community that has grown up around the weight-reduction industry. Glaxo's Pittsburgh,
Pa.-based consumer health-care unit set up the site, QuestionEverything.com1, in April
and says its purpose is to offer peer support and professional advice to dieters and to
"dispel the many myths about dieting, exercise and fraudulent weight loss products."
QuestionEverything.com doesn't promote Alli: A spokeswoman says Glaxo will create a
separate promotional site if it wins approval from the Food and Drug Administration to
sell Alli in the U.S. Glaxo licensed the U.S. over-the-counter rights to the drug, a lowerdose version of the prescription drug Xenical, which Switzerland's Roche Holding AG
continues to market world-wide. The FDA asked United Kingdom-based Glaxo to
provide more information about Alli in April. Glaxo says it hopes to begin selling the
drug in the U.S. later this year.
Anticipating the launch of a major weight-loss drug, Glaxo is keen to become known as a
trusted source of weight-management information, the Glaxo spokeswoman says. And it
has another interest in promoting healthy eating, some analysts note: Clinical trials
indicate that people taking Alli experience fewer gastrointestinal side effects if they stick
to a low-fat diet. Alli blocks the body's absorption of dietary fat, which results in
flatulence and other unpleasant side effects. If it is cleared for sale, Alli would be the first
FDA-approved OTC diet pill on the U.S. market.
Diet-drug marketing is a minefield, with some popular products tripped up by safety
issues and side effects. Wyeth's Redux and Pondimin, which constituted the fenfluramine
portion of the once popular fen-phen diet combination, were taken off the market after
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 18 of 37
being linked with heart-value problems, and Wyeth has paid out billions of dollars in
legal settlements to users. Other products simply don't work that well.
Marketing experts say Glaxo's site is a way for the pharmaceutical company -- the
world's second-largest according to sales, behind Pfizer Inc. -- to test the market and
prepare for the Alli launch. That includes gathering the email addresses and ages of
individual consumers -- information prized by marketers.
By watching how people use the site and reading the messages they post on its discussion
board, Glaxo is likely to learn how to position Alli, says Barbara Bix, a marketing
strategist at BB Marketing Plus, Boston, which isn't working on the Alli launch. And by
putting the Glaxo name on a site offering sensible advice about diet and exercise, the
company is starting a buzz among potential customers, which will be useful once it starts
marketing the specific product, Ms. Bix and others say.
The Glaxo spokeswoman says the company may contact Web site visitors, but only after
Alli receives FDA approval. Even then, Glaxo says it plans to contact only those visitors
replying that they want more information about an FDA-approved product.
Other heavyweights of the diet industry -- Jenny Craig, Weight Watchers, the Zone Diet,
the South Beach Diet -- blur the line between advice and promotion with Web sites that
plug products, offer advice and collect consumer data. An Internet search of the words
"weight loss" or "diet pill" results in hundreds of sites and ads pitching everything from
miracle dietary supplements to fat-melting hypnosis.
The Internet weight-loss community is one of the most lively to emerge in recent years,
as more and more consumers seek health information on the Web. Interest in new drug
treatments appears to be especially high. There are dozens of sites devoted to Acomplia, a
closely watched obesity drug whose approval is pending with the FDA. The sites, run by
third parties and not by Acomplia's manufacturer, Sanofi-Aventis SA of France, give
updates on clinical trials for the drug and the likelihood of FDA approval. Another site,
the Alli Report, published by Medical Week News Inc., tracks news on Glaxo's drug,
including the formation of QuestionEverything.com.
Glaxo has pledged to the FDA to promote Alli as part of a program of improved diet and
exercise, to help make sure consumers don't form unrealistic expectations of it as a cureall. The company has tested a similar approach with its antismoking gum Nicorette. A
Web site, Nicorette.com, offers tips for coping with cravings, a "dependency quiz" and
video clips from "coaches" who help people quit. Other drug companies use Web sites to
promote specific pills to U.S. consumers, but they don't usually include such a wide
variety of health and lifestyle advice.
The QuestionEverything home page instructs visitors to "question everything you know
about weight loss." The Web site features stylish graphics, including drawings of a svelte
woman reading a label, and more than a dozen links that readers click to read about
portion size, low-calorie cooking or organic food. The site also offers recipes, quizzes
and discussion boards where visitors post tips.
Before joining a discussion, visitors must register, giving their email address and date of
birth. The site also asks for their first name, ZIP code and ethnic background. The site
notes that Glaxo may "send you future communications on one or more of our brands,"
and that it will "refer to your information to better understand your needs...and how we
can improve our products and services." The site itself makes no mention of the brand
name Alli or any other Glaxo drug.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 19 of 37
15. If it is cleared for sale, _____ would be the first FDA-approved OTC diet pill on the
U.S. market.
a. Glaxo
b. Acomplia
c. Alli Correct
d. Xenical
Free Sharpcast Service Lets You Synchronize Your Photo Albums
By WALTER S. MOSSBERG
July 13, 2006; Page B1
http://online.wsj.com/article/SB115275297896005247.html
As more people acquire multiple computers and high-end cellphones, one of the biggest
problems they face is synchronizing important files among all of these devices, and
ensuring they have backup copies.
Inside big corporations, these tasks often are handled by internal networks, which store
files centrally and back up computers nightly. But consumers have had to resort to timeconsuming and imperfect methods. These include emailing files to themselves, manually
synchronizing their phones and computers, and manually copying files among their
computers.
Over the next year or so, I expect that one of the big trends in personal technology will be
the introduction of services and products that make this job easier.
Both Google and Microsoft are reportedly preparing new services that will back up all of
a consumer's data to their servers. Apple already offers a service called .Mac, which, for
$99 a year, gives consumers storage space on an Apple server, allows backups to that
remote server and synchronizes selected data among multiple Macs. And Microsoft has
recently acquired a small service called FolderShare, which I reviewed last year, that can
synchronize and back up selected folders on any mix of Windows and Macintosh
computers.
Now, a small Silicon Valley start-up called Sharpcast is introducing an impressive, free
service that synchronizes data among PCs, phones and a Web site at lightning speeds. I
tested Sharpcast for several weeks, and found that it works really well. You can try it out
at www.sharpcast.com1.
In this first incarnation -- a beta, or test, version -- Sharpcast works only with photos. But
it plans this year to add synchronization of contacts and calendar entries and, eventually,
other types of data. If the service can handle these other data types as well as it handles
photos, Sharpcast will be a real boon to consumers.
With Sharpcast Photos, any change you make to an album of photos on one of your
devices is replicated within seconds on your other devices. If you add a photo to an
album on your PC, it shows up within seconds on your phone and on your Sharpcast Web
page. If you rotate a photo on the phone, the same photo is rotated within seconds on the
PC and Web page. If you delete a photo on the Web page, it's immediately deleted on the
PC and the phone. And if you take a photo with the camera on your Sharpcast-enabled
phone, it will show up in seconds on your PC and your Web page.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 20 of 37
You can also share your albums with other Sharpcast users, and receive shared albums
from them. By synchronizing your photos among multiple devices and a Web site,
Sharpcast is also backing them up, so the loss of one device won't mean the loss of your
prized pictures.
On your PC or phone, Sharpcast works through a software program you download from
the company's Web site. You can also access the service, and your photos, from a
personal Web page Sharpcast provides, without using any Sharpcast software.
For now, the Sharpcast Photos software works only on PCs running Windows XP, and on
a few high-end phones, like the Palm Treo 700w and the Motorola Q, that run Windows
Mobile 5.0 software. The company plans to support more phones soon. It is also working
on a Macintosh version. Today, Mac owners can use Sharpcast via the Web page, which
isn't quite as capable or fast as the Windows software, but still works well.
16. With ______ photos, any change you make to an album of photos on one of your
devices is replicated within seconds on your other devices..
a. Sharpcast Correct
b. plink 23
c. Uplink 32
d. Sharpoint
Organizer Hopes That For Day Laborers, a New Day Is Coming Very Soon
By MIRIAM JORDAN
July 14, 2006; Page A9
http://online.wsj.com/article/SB115283823883006458.html
AGOURA HILLS, Calif. -- The driver of a black Honda thought he would quickly enlist
some guys to load furniture and boxes onto a truck -- until he heard the men wanted $15
an hour. "What? You don't even have papers," the driver told a clutch of Latino day
laborers clustered around his car earlier this week. But they stood firm.
"We do hard jobs other people won't do," Luis Cap, a Guatemalan, told the man behind
the wheel. "If you want to save money, that's OK. You will have to find other workers."
The Honda drove off, the odd jobs unfilled.
Three months ago, about 120 immigrants who solicit work along a sun-drenched road in
this town outside Los Angeles decided among themselves to only accept work for a
minimum hourly wage of $15 -- about $2.50 higher than the previous, informal rate.
"What they have here is the essence of a union," says Pablo Alvarado, national
coordinator of the National Day Laborer Organizing Network, who supervised the
workers' roadside vote.
Day laborers, who are often regarded as the face of illegal immigration and the so-called
informal economy, are organizing themselves. Steering this initiative is Mr. Alvarado, a
former undocumented immigrant determined to prepare this diffuse underground work
force for a role in the political debate over immigration. "Organizing immigrants and
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 21 of 37
other low-wage workers can improve conditions for all workers," says Mr. Alvarado, 38
years old, who co-founded the Network in 2002.
About 117,600 day laborers in the U.S., most of them from Mexico and Central America,
seek work on any given day, according to a study released this January by researchers
from UCLA, the University of Illinois and New School University in New York. The
national study also found that three-quarters of day laborers are illegal immigrants.
Congregating at hundreds of sites across the country, day laborers sometimes form the
backbone of local residential construction, and also work in landscaping, food service and
at odd jobs. But they have recently become the target of anti-illegal immigrant groups,
like the volunteer border patrol Minutemen, and town ordinances seeking to eject them.
Partly to fight back, Mr. Alvarado and his team of organizers at 30 affiliated groups -which include day-laborer centers, immigrant-advocacy organizations and church-based
groups -- are striving to integrate the immigrant workers into the broader labor
movement.
Last month, the Laborers' International Union of North America, which represents
construction workers, announced it would collaborate with Mr. Alvarado's network to
create hiring sites, lobby for immigration reform and protect day laborers' rights. To be
sure, day laborers could bolster the 700,000-member union's presence in residential
building. "Employers abuse immigrant workers because of their status and bring down
wages for everyone," says Yanira Merino, the union's immigration coordinator. "They
can less easily manipulate organized workers."
The powerful AFL-CIO is also courting day laborers. A few weeks ago, a delegation of
senior federation officials flew to Los Angeles to meet with Mr. Alvarado and his team of
organizers. They made the one-hour road trip from downtown to Agoura Hills for a close
look at the impact of the network's organizing efforts.
"Through Pablo, we have a whole new cadre of worker advocates," says Ana Avendaño,
associate general counsel of the AFL-CIO.
Sources familiar with discussions between the federation and Mr. Alvarado's network say
they are on the verge of a historic agreement to put day-laborer representatives in several
cities at the table alongside local AFL-CIO bosses as they shape strategies on a variety of
worker-related issues. The day-laborer representatives would be there to participate in
votes at the local level; some of the representatives would most likely be undocumented
workers.
Of course, not everyone endorses the idea of allowing undocumented day laborers to
hook up with the mainstream labor movement. "They're so desperate for new members
that they're selling out to the aliens," says John Keeley, a spokesman for the Center for
Immigration Studies in Washington, a think tank that favors more restrictive immigration
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 22 of 37
policies.Adds Dan Stein, president of the Federation for American Immigration Reform:
"[Organized labor] is desperately trying to reclaim some relevance."
For their part, some day laborers are wary of linking up with unions because of negative
perceptions about organized labor from their home countries.
Mr. Alvarado, a native of El Salvador, worked in factories, construction and gardening
after sneaking across the border from Mexico into the U.S. 16 years ago. He became a
legal permanent resident of the U.S. after marrying a U.S. citizen in 1997. He and his
wife have two children.
He honed his skills as an organizer in the 1990s, first as a volunteer filing wage claims
for day laborers and then as a staffer of the Coalition for Humane Immigrant Rights, an
advocacy group.
In towns trying to ban day laborers from soliciting jobs in the streets, Mr. Alvarado has
helped the workers file lawsuits based on their First Amendment right to freedom of
expression.
The first such lawsuit -- filed in 1998 against a Los Angeles county ordinance -- enabled
the Agoura Hills laborers to remain at their location. Until the day laborers won that case
in 2000, they were pursued by law-enforcement officers who used helicopters and patrol
cars to hound them, and then arrested, jailed and fined them.
Aware of the negative image day laborers have in many areas, Mr. Alvarado encourages
them to show good citizenry. In Agoura Hills, the workers -- who gather in several
groups along a hilly road -- have bought trash cans and set rules of conduct. In one spot,
they have chained the can to a big Oak tree that provides them with shade. The last day
laborer to leave the site each afternoon takes the garbage. Card-playing, drinking and
drugs are prohibited. "If you don't abide by the rules, you leave this spot," says Jorge
Santos, one of the laborers. The rules, and the $15-an-hour minimum wage, are enforced
by peer pressure.
Thanks to organizing efforts, thousands of day laborers participated in immigration
marches that took place earlier this year. "Not a single worker showed up here on May
1," boasts Mr. Cap, the Guatemalan immigrant in Agoura Hills.
Mr. Alvarado and his staff have also been holding teach-ins to ensure that the day
laborers stay abreast of the bills and the debate over the issue of immigration. On a recent
Saturday in Los Angeles, about 70 men gave up a day's work for a U.S. civics lesson. In
Spanish, Mr. Alvarado engaged the group of men with paint-splattered trousers and
sawdust under their nails in a discussion about the branches of government, the two main
political parties and immigration legislation. A similar four-hour lesson took place in
several U.S. cities.
"They need to understand their place and role in this debate," said Mr. Alvarado.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 23 of 37
17. Three months ago, about 120 immigrants who solicit work along a sun-drenched road
in a town outside Los Angeles decided among themselves to only accept work for a
minimum hourly wage of ______.
a. $5
b. $10
c. $15 Correct
d. $25
Questions 18 – 23 from Money & Investing
The Next Frontier: Paternity Leave
By RON LIEBER
July 8, 2006; Page B1
http://online.wsj.com/article/SB115230668980601000.html
The continuing quest for a stigma-free paternity leave is showing a few signs of progress.
While maternity leave is now a (mostly) established part of the culture of work, we dads
have it tougher if we want an extended period of paid time-off. True, since 2004,
California dads have been able to take as long as six weeks off and now get a maximum
$840 weekly check funded by all employees who are in the state's disability-insurance
program. So far, it's the only state that does this, though. Otherwise you have to cross the
pond: In the U.K., the new "Work and Families Bill" extends the right to time-off (with a
small government subsidy) for many fathers.
In the U.S., just 13% of employers that the nonprofit Families and Work Institute queried
in a 2005 survey said they offer any paid paternity leave to U.S. workers (moms
generally qualify for disability pay). That number shows little sign of increasing. Indeed,
the sad reality is that the decision to take a parental leave often comes down to whether
you can afford it. So here's how to think about the financial challenges:
Many new parents are eligible for unpaid leave. With a few exceptions, the federal
Family and Medical Leave Act allows anyone who works in a company with more than
50 employees to take a 12-week break. You get to keep your health insurance and are
guaranteed your old job or an equivalent one upon return.
Also, you can take your leave anytime within a year of the arrival of your child. So it's
fine to take yours when your spouse's leave ends, to maximize the time that one parent is
at home and put off child-care costs.
The lack of guaranteed pay makes an extended leave difficult for people whose spouses
don't work and for the self-employed, brokers and others similarly employed. The rest of
us, however, can treat paternity leave as a goal to save for like any other. Nine months
probably isn't enough time to plan. Instead, set a goal years ahead of time and figure out
what you need to save to avoid debt while still keeping the kid in diapers.
Many men worry about how this will look in a world where "leaving to spend more time
with his family" is generally code for having been fired. If someone holds your leave
against you come promotion time later on, that income lost to leave will pale in
comparison to the long-term effect of a foregone raise. But if daddy-leave still has a
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 24 of 37
stigma, perhaps it's because so many people who could afford to take it aren't choosing to
blaze a trail for the rest of the paternity fraternity.
Since parenting is a shared duty, consider your spouse, too, who will have an easier
transition back to work if you're at home with the kid for a bit. The skills you pick up as a
primary caregiver will make it easier for your partner to work late or travel knowing that
you can hack it at home.
18. Many new parents are eligible for unpaid leave. With a few exceptions, the federal
Family and Medical Leave Act allows anyone who works in a company with more than
50 employees to take a _________ break.
a. 3 week
b. 6 week
c. 12week Correct
d. 6 month
Regional Banks in a Rate Whirl
By ROBIN SIDEL and CLINT RILEY
July 10, 2006; Page C1
http://online.wsj.com/article/SB115248940220701897.html
After watching interest rates rise for two years, a growing number of Americans are
transferring their money into high-yielding bank accounts, a trend that is taking its toll on
the nation's regional banks.
As financial institutions gear up for quarterly earnings reports this month, a number of
them have warned investors and Wall Street analysts that results will be hurt by rising
rates. And part of the blame is being placed on consumers and businesses who are
moving funds from traditional low-interest-bearing accounts to online savings accounts,
certificates of deposit and other bank products that are sporting annual rates of more than
5%.
While this may be good news for consumers who are earning less than 1% on a plainvanilla savings account, it is putting the banks in a pickle because they must either raise
rates to stay competitive or watch their customers flee to rivals.
Although interest rates have been rising steadily since mid-2004, there is typically a lag
time before banking customers take action, say industry analysts. Last month, the Federal
Reserve raised interest rates for the 17th consecutive time, boosting its short-term target a
quarter-point to 5.25%.
"We seem to have passed some threshold between 4.75% and 5% where the depositors'
attention is focused on the costs associated with not moving their accounts," says Gary
Townsend, an analyst at Friedman, Billings, Ramsey & Co. in Arlington, Va.
That is the case at City National Corp., a Beverly Hills, Calif., bank that has about $15
billion in assets. The bank, which has a market value of $3.2 billion, last month lowered
its forecast for 2006 earnings growth to between 1% and 4% from its previous
expectation of 8% to 10%.
"Responding to a steady rise in short-term interest rates over the past two years, some of
City National's business clients have shifted funds from core deposit accounts into
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 25 of 37
higher-yielding accounts and instruments," the bank said in a Securities and Exchange
Commission filing. The company's stock tumbled 11% on the news and pressured shares
of other California banks. City National, which fell to a 52-week low of $60.02, was
trading at $65.84 on Friday as of 4 p.m. composite trading on the New York Stock
Exchange.
The trend is contributing to a tricky time for regional banks, which often don't have a
steady stream of fee-based products that can help offset the impact of rising rates. The
recent deposit trends are adding more pressure to net interest margins -- the key measure
of profitability that represents the difference between the amount that banks earn in
interest from loans and what they pay out in interest for deposits.
Net-interest margins have been squeezed for much of the year by the flat yield curve, or
the difference between long- and short-term interest rates. Banks, which borrow at lowercost short-term rates and lend money at higher long-term rates, typically profit on the gap
between the two. When the curve flattens or inverts -- as it did briefly earlier this year -banks earn lower profits.
"With the curve remaining flat, we expect managements' tone to be cautious as the rate
cycle could extend past most expectations," wrote John McDonald, an analyst at Banc of
America Securities, in a June 30 report.
In recent weeks, other regional banks also have warned that the financial results are being
squeezed. Among them: National City Corp. of Cleveland; Fifth Third Bancorp, which is
based in Cincinnati; and New Jersey's Commerce Bancorp Inc. The warnings have
prompted analysts to reduce their expectations for other regional banks that haven't yet
sounded the alarm.
"As we get closer to second-quarter earnings season, it seems clear that the current
operating environment is continuing to take a toll on bank earnings," wrote Robert
Hughes, an analyst at Keefe, Bruyette & Woods Inc., in a 526-page earnings outlook
issued late last month. The New York boutique firm specializes in providing investment
banking and research in the financial-services sector.
Even as people move their money into higher-yielding accounts, banks are competing
fiercely to retain those customers and attract new ones. Citigroup Inc.'s online savings
account, for example, now boasts a 5% yield, up from 4.5% when the global bank
introduced the account in March. A traditional Citibank savings account, meanwhile, is
yielding 0.7%. And New York-based Emigrant Bank has raised the interest rate on its
online savings account twice in the past two weeks. It now yields 5%.
The continued squeeze on net-interest margins is expected to accelerate a round of
consolidation that already is taking place in the banking sector. Citizens Banking Corp.
recently agreed to buy Republic Bancorp Inc. for $1.05 billion in a deal combining two
Michigan banks that "will be better positioned to compete with super-regional as well as
community banks," according to a statement announcing the transaction.
"We believe the challenges will force the hands of banks to strike low-premium,
defensive consolidation deals, further limiting upside for investors," wrote Meredith
Whitney, an analyst at CIBC World Markets in a report issued last month.
19. Even as people move their money into higher-yielding accounts, banks are competing
fiercely to retain those customers and attract new ones. Citigroup Inc.'s online savings
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 26 of 37
account, for example, now boasts a __________, up from 4.5% when the global bank
introduced the account in March.
a. 4.8 % yield
b. 5.0 % yield Correct
c. 5.1 % yield
d. 5.5 % yield
Coke Tries to Pop Back In Vital Japan Market
By CHAD TERHUNE
July 11, 2006; Page C1
http://online.wsj.com/article/SB115257436848602798.html
Coca-Cola Co. has been showing signs of new fizz lately, but weak sales of canned
coffee and bottled teas in Japan could sap its rebounding share price.
Coke sells drinks around the world, but Japan is one of its most important markets,
generating roughly 20% of the company's annual profit. That is largely driven by its
Georgia coffee brand, a popular pick-me-up since 1975 for office workers who buy the
caffeinated drink from the country's ubiquitous vending machines.
The problem: A surprising sales decline in Japan during the first quarter hasn't been
reversed, and some analysts worry that the downturn could persist for some time. A
Georgia marketing campaign flopped and, in May, the Atlanta beverage company
recalled more than two million bottles of Coca-Cola and other drinks contaminated with
iron powder in Japan. Coke said there weren't any ill health effects from the
manufacturing mishap.
Coke has been working hard to win back investor confidence after repeatedly missing its
long-term growth targets. After taking over in 2004, Chairman and Chief Executive
Neville Isdell wrote off last year as a "transition year." This year is the first test of
whether Coke under Mr. Isdell can hit his goal of increasing annual operating profit by
6% to 8%. Coke defines the operating-profit goal as earnings before interest and taxes, on
a currency-neutral basis.
Fredric Russell of Fredric E. Russell Investment Management Co. in Tulsa, Okla., with
$43 million in assets, sold his 60,000 shares in Coke in 2000 and remains hesitant until
Coke bounces back in Japan. "I would take another look at Coke with two more good
quarters. They need to prove it to me," Mr. Russell says.
Coke shares are up 8% so far this year, outpacing the 3.6% rise of the overall Dow Jones
Industrial Average (of which it is a member), and rival PepsiCo Inc. But Coke's shares
are down about 2% in the past five years, compared with Pepsi's stock, which is up about
35% for the same period. Coke stock, which long traded at a richer price/earnings ratio
than Pepsi, now fetches about 19 times its estimated 2006 earnings, just under Pepsi's
20.6 trading multiple. At 4 p.m. in composite trading yesterday on the New York Stock
Exchange, Coke was up 45 cents, or 1%, to $43.63.
Mr. Isdell highlighted the stock's resurgence in a June 1 memo to employees marking his
two-year anniversary on the job by noting that last year's rise of more than 2% in softdrink volume was Coke's best since 2000. Mr. Isdell also is winning praise for pouring
more into marketing, accelerating product innovation and improving employee morale.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 27 of 37
But the Japanese sales downturn will keep Coke from reaching even the low end of its
6% to 8% target for operating-profit growth, predicts Judy Hong, an analyst at Goldman
Sachs. She rates Coke's stock "neutral" and owns none. Her firm does business with
Coke.
Most bothersome to Ms. Hong are monthly sales reports from Coke bottlers in Japan
indicating their market-share losses have expanded in the second quarter from a modest
decline in the first quarter. As a result, she expects Coke's Japanese volume to fall 3% or
more in the second quarter from a year earlier. "I don't think the improvement in Japan is
coming in fast enough," she says.
The slide in Japan began after Coke launched a new marketing campaign and packaging
for the canned Georgia coffee line last fall. It wanted to attract younger people to the
brand because core consumers are aging. But the campaign turned off some loyal fans
confused by more-colorful graphics and new flavors. Trying to fix the problem, Coke
rolled out a new ad campaign in May featuring young and middle-age men in business
suits enjoying Georgia coffee at work, while refocusing on core flavors such as Mocha
Kilimanjaro and Emerald Mountain Blend.
Despite the poor results so far this year, Mr. Isdell predicted in April that Japan would
return to growth in the second quarter. A Coke spokesman declined to comment on sales
in Japan and the impact on overall profitability. The company is in the quiet period
leading up to the announcement of second-quarter results next week. Georgia coffee
accounts for about a third of Coke's volume in Japan and half its profit there.
20. Coke sells drinks around the world, but Japan is one of its most important markets,
generating roughly ___ of the company's annual profit.
a. 10%
b. 15%
c. 20% Correct
d. 25%
Can Mr. Fix-It Find Time for GM?
By JESSE EISINGER
July 12, 2006; Page C1
http://online.wsj.com/article/SB115266543757004125.html
As Brazil's brightest soccer stars were flaming out in the beautiful game, another
Brazilian-born leading light was rising in what is becoming an ugly business.
Billionaire investor Kirk Kerkorian, who controls just under 10% of General Motors,
made a public plea for Carlos Ghosn almost two weeks ago. Born in Brazil to Lebanese
parents, the globe-trotting Mr. Ghosn has used fancy footwork to create auto-industry
turnarounds in Europe and Asia. Mr. Kerkorian and sidekick Jerry York propose that GM
link up in some fashion with the companies Mr. Ghosn heads, Nissan and Renault. The
GM board authorized talks last week, and Mr. Ghosn (pronounced Goan) is flirting with
the idea.
It's obvious why these guys would want Mr. Ghosn. They are getting desperate.
It's hard to understate how tough an investment General Motors has been for Mr.
Kerkorian. He bought his initial shares for as much as $31 each about a year ago. Then
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 28 of 37
gasoline proceeded to go to $3 a gallon. The sport-utility vehicle segment continued to
fall. Delphi, GM's major parts supplier, filed for bankruptcy-court protection. GM
revealed it was subject to investigations by the Securities and Exchange Commission and
cleaned house in its finance operations.
The shares promptly fell to a low in the mid-18s by late December. The shares have
climbed back almost to that initial price. In New York Stock Exchange composite trading
yesterday, GM shares rose 12 cents to $29.50.
The stock had been recovering as GM management belatedly recognized the crisis. GM
has made a series of restructuring moves in the past year. But now the shares have a
Ghosn-premium imbedded in the value, making the stock vulnerable if the talks falter or
GM management rejects the alliance.
Mr. Ghosn deserves his reputation. He helped an earlier turnaround at Renault in the
1990s and at the U.S. operations of Michelin. Most remarkable is that amid the insular
Japanese business culture, he managed to bring Nissan back from the brink of
bankruptcy, cutting thousands of jobs, shutting plants and selling noncore assets.
But GM? Can he do that and run two other companies? This time at Renault, he has yet
to work his magic. True, he has been there only for a year or so. But that is precisely why
Renault shareholders want his attention focused on the French firm. They feel like their
superstar has delivered a head butt to the chest.
Renault has been attracting investors who seek out undervalued stocks since rumors of
Mr. Ghosn's return started surfacing early last year. Subtract the value of Renault's
holdings in Nissan, Volvo and its financing unit, which has around $2 billion of net
worth, from its overall stock-market value, and the result is less than zero. In other words,
investors think Renault isn't worth anything; in fact, it detracts, according to an analysis
by Adam Hurwich, who runs a hedge fund called Calcine Capital that owns Renault
stock.
Such sum-of-the-parts analyses often can't be realized in the real world, but they are an
indication the market doesn't believe in Mr. Ghosn's strategy yet. His plan relies on
growth, a cure for many past mistakes. Renault expects to increase sales by 800,000
vehicles by 2009. He wants to attack new markets, such as the Middle East and Eastern
Europe, source more efficiently and improve Renault's poor quality.
21. Billionaire investor Kirk Kerkorian, controls just under ______ of General Motors.
a. 2%
b. 3%
c. 10% Correct
d. 20%
A Central Shift
By JUSTIN LAHART
July 13, 2006; Page C1
http://online.wsj.com/article/SB115275241776105239.html
The Bank of Japan policy makers have telegraphed their intention to lift interest rates this
week so clearly that one wonders how they're spending their time during the two-day
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 29 of 37
rate-setting meeting they started today. Perhaps somebody remembered to bring a deck of
cards to fill the time.
Still, even though investors feel certain the Bank of Japan will lift its overnight target rate
to 0.25% from the current level of zero when it concludes its meeting Friday, there are
still plenty of jitters over the move.
Some of the nervousness is over what hints the bank might give on its future rate plans -familiar ground for anyone who's been pondering the Federal Reserve's efforts of late to
telegraph the direction of its policy.
The bigger uncertainty is about the consequences of unwinding a fairly radical interestrate policy that has been in place for five years. Since there's no modern precedent for the
Bank of Japan's zero-interest-rate policy, nobody has any real sense of what happens
when the policy goes away.
This all matters not just for Japan, but also for the rest of the world. It is the second
largest economy on the globe, behind the U.S., and thus an important driver of growth.
Just as important for investors, the easy money created by the Bank of Japan the last few
years has been tapped by foreign investors and parked in assets and places far from its
shores.
A rise in rates effectively means the Bank of Japan will allow fewer of its yen to slosh
around the world feeding higher asset prices. That is a process it began last spring when it
ended its practice of pumping extra cash into the country's banks.
Perhaps not coincidentally, financial markets haven't been hopping since.
Of course, even if the central bank raises short-term interest rates by a quarter point on
Friday, and even if it brings its target rate to 1% in a year's time, as market participants
expect, Japanese rates would still be very low.
The problem is that with fewer yen to go around, even a small change can count in big
ways.
22. Investors feel certain the Bank of Japan will lift its overnight target rate to _____
from the current level of zero when it concludes its meeting Friday.
a. 0.25% Correct
b. 0.55%
c. 1.25%
d. 1.55%
China's Entrepreneurs Offer a New Path Best Hope for Country's Economy May Lie
With Private Enterprise, But Inexperience Could Hurt Effort
By HENNY SENDER
July 14, 2006; Page C1
http://online.wsj.com/article/SB115284232195906595.html
CHANGSHA, China -- The expanse where Broad Ltd. makes its giant cooling systems
on the outskirts of Changsha, capital of China's inland Hunan province, isn't everybody's
idea of what a factory looks like, especially in China.
A scaled-down replica of Buckingham Palace stands a few hundred yards from the
cavernous hangars where the air-conditioning systems are built. The palace flies the red
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 30 of 37
flag of the People's Republic of China rather than the British Royal Standard. As the
banner flaps in the wind, a group of company recruits jogs by, looking like members of
the People's Liberation Army in their camouflage uniforms.
Using a technology that doesn't rely on electricity, the company's coolers end up
everywhere from facilities built for the 2004 Athens Olympics to the new Bangkok
International airport. Not far from a building where computer banks monitor the
performance of the cooling systems all over the world, Zhang Yue, who founded Broad
in 1988, houses his helicopter and his jet plane.
Mr. Zhang is the new face of China, where private enterprise was only officially
recognized a few years ago. Today, China's entrepreneurs offer a third path between the
ailing state enterprises that account for a mere 30% of China's output and the foreign
enterprises that account for over half of the country's exports and are increasingly making
inroads in the domestic market as well.
If China is to flourish, its best hope lies not in state-owned enterprises, which still rely on
government support and subsidized credit, but with a group of entrepreneurs such as Mr.
Zhang. This group, which barely existed a decade ago, has had great successes, but they
often lack the discipline and experience to build lasting business empires.
The rise of the entrepreneurs comes as capital flows not only to state behemoths, but to
new enterprises. "There is a gold rush in China because Chinese entrepreneurs can get
capital and use other people's money," says Andy Xie, chief economist for Morgan
Stanley in Asia. "They have wild dreams. But you can't always figure out where and how
they make money."
"Private entrepreneurs are a transforming force in China," adds Fred Hu, a managing
director at Goldman Sachs Group Inc., who divides his time between Beijing and Hong
Kong. "But you can't look too closely at most of them." Mr. Hu, who is also from
Changsha and sits on the board of Broad, says Mr. Zhang is different.
Unlike Mr. Zhang, 70% of the richest private entrepreneurs in China are property
developers, says Morgan Stanley's Mr. Xie. Most of those who aren't developers are
essentially traders, buying and selling goods and companies. By contrast, Mr. Zhang
makes things for which there is demonstrable demand. At the same time, he is an indirect
beneficiary of the real-estate boom, because many of his customers are developers.
Moreover, while most manufacturing in China is all about economies of scale that result
in the lowest price, Mr. Zhang says he doesn't compete by undercutting competitors. He
says his products are more expensive than those of competitors in Japan and Korea. The
equipment used is world class and imported to his Broad factory from all over the world.
Mr. Zhang is also unusual in that he is focused on the long term. By contrast, "most
entrepreneurs see investment as detracting from profits," says X.D. Yang, co-head of
buyout firm Carlyle Group's investments in Asia. "They only draw up one-year budgets.
They don't build their companies to last for years and years."
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 31 of 37
In a world where capital has never been priced realistically, and, until recently, loans
were considered government disbursements rather than debt that had to be repaid, Mr.
Zhang is careful about how he seeks financing. "He is the only one I have ever met in
China who has not asked me to get him money through Goldman," Mr. Hu adds.
Mr. Zhang also invests time and energy in his work force. He recruits from all over
China, showing visitors a list of recent recruits and noting how many come from China's
top universities.
Certificates attesting to the fact that his company paid more taxes than any other private
company are displayed prominently in the executive suite. Last summer Premier Wen
Jiabao visited Broad, a trip recorded in glossy marketing materials. "You must be Zhang
Yue. I know you!" Premier Wen exclaimed in his greeting," the material states. "Yes I
am, Premier, welcome to Broad Town," Mr. Zhang is said to have replied.
Mr. Zhang insists he is a rare breed in China, since he both pays taxes and doesn't pay
bribes. He also says his refusal to pay bribes is one reason why he has failed to win
certain contracts.
23. Of the richest private entrepreneurs in China _______ are property developers.
a. 30%
b. 40%
c. 70% Correct
d. 90%
Questions 24 – 26 from Personal Journal, Section D
Homing In on Lower Airfares
By SCOTT MCCARTNEY
July 11, 2006; Page D1
http://online.wsj.com/article/SB115256282567002617.html
When the price of an airline ticket can change several times a day, it's hard to feel secure
about locking in the lowest fare. But several Web sites are adding features intended to
help you feel confident about the price you're paying.
FareCompare.com offers historical prices for trips in 77,000 markets in the U.S. and
Canada -- data that haven't been available before to consumers. Farecast.com goes a step
further, using sophisticated data-mining techniques to predict whether prices for a
particular trip are likely to go up or down over the next week. Kayak.com now has a
feature called Buzz that shows the best prices found by other Kayak users on the most
searched destinations over the past 48 hours.
Airlines monkey around with ticket prices as much as three times a day for domestic
itineraries and prices can change on international trips as often as five times a day. What's
more, fares on a particular flight can change quickly -- up or down -- as seats sell or
remain empty. A lack of sales can prompt airline computers to offer more seats at a lower
price.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 32 of 37
"You need to know what a decent price is," says Rick Seaney, chief executive and
president of FareCompare. "Consumers should be more educated about purchases."
Booking air travel is increasingly a self-service business, with airline Web sites taking a
bigger share of bookings and growing even faster than online agencies such as Expedia,
Travelocity and Orbitz. They all provide lots of prices, but little historical context. In a
way, sites like FareCompare, Farecast and Kayak perform the functions of a good travel
agent, who would often track pricing changes and know how to spot deals. Since the
Internet has turned many consumers into their own travel agents, the new online tools can
help them make better buying decisions.
FareCompare shows the lowest prices offered by month for the next 11 months in any
U.S. market, and offers a "Fare Trend" graph showing whether the lowest prices have
been increasing, decreasing or holding steady. You can quickly see whether prices in that
market bounce around or stay consistent. And with the current prices, FareCompare
offers a one-star to four-star rating of how good the offering is compared with past prices.
The lowest price available for a round-trip ticket in September between Boston and
Miami, for example, was priced yesterday by FareCompare at $198 (not including taxes).
That's expensive compared with last year, when the lowest price available for September
2005 was $158. But prices were higher in April, May and June, according to
FareCompare. The Web site showed American dropped its lowest price on that route by
$80 two weeks ago.
With FareCompare, it takes a few clicks to get available prices on specific dates since the
site first offers lowest price in a month, then prices broken down by week. Drill a bit
deeper, and you can break down prices by airline on the same route. While Delta Air
Lines has consistently charged about $400 for its lowest advance-purchase round trip
between Atlanta and Cincinnati over the past three months, prices at Continental Airlines
yo-yoed in that market between $100 and $400 in the same period, according to
FareCompare. Delta offers nonstop service between its two biggest hubs; Continental
offers only connecting flights.
FareCompare, a Dallas company that started doing sophisticated travel data-crunching for
businesses then decided to add a consumer site, has accumulated 22 months of prices.
The site also tracks first-class and business-class fares, and is a quick way to find "Y-Up"
fares -- coach tickets that get you automatic first-class upgrades.
You can't book tickets at FareCompare, Farecast, Kayak and other such referral sites such
as SideStep. One click will send you to an airline Web site or other vendor for booking.
Farecast.com grew out of a University of Washington professor's research into whether
air fares were rational, meaning could they be predicted with data-mining computing that
looks at historical patterns and recent changes. It's like forecasting the weather. While far
from perfect, Farecast believes it can make accurate forecasts.
Farecast spent three years developing its system, which crunches huge amounts of data
including indicators of airline inventory, pricing history and consumer demand. Farecast
doesn't replicate the "yield management" systems that airplanes run, which try to
maximize revenue generated by each airline seat. Instead, Farecast evaluates price
movements over time -- what happened to the actual prices airlines posted.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 33 of 37
24. Airlines monkey around with ticket prices as much as ______ times a day for
domestic itineraries and prices can change on international trips as often as ____ times a
day.
a. ten / twelve
b. five / seven
c. three / five Correct
d. four / six
Popular Mortgage Web Site Under Scrutiny
By MICHAEL HUDSON
July 12, 2006; Page D1
http://online.wsj.com/article/SB115266435444704096.html
A lawsuit against one of the Web's premier sites to shop for a mortgage underlines the
difficulty consumers can have in locating reliable financial information online.
The lawsuit is against Bankrate Inc., the financial publisher behind the popular
bankrate.com site that draws millions of visitors yearly through partnerships with
Yahoo!, AOL and other top online companies. Bankrate provides advice, loan calculators
and articles on financial topics. It supplies interest-rate data to eight of America's 10
largest newspapers, including The Wall Street Journal. It also caters to lenders, who
compete to attract borrowers by posting their deals on bankrate.com.
But the company's reliability as a consumer tool is being challenged in the lawsuit, filed
by a former advertiser, that accuses the company of allowing its Web site to become a
haven for "bait-and-switch" loan pitches. Testimony and internal company documents
filed with the court show Bankrate has fielded hundreds of complaints about mortgage
lenders who fail to deliver the rates they advertise; one lender told a Bankrate employee a
consumer would need "a direct pipeline to God" to qualify for its advertised rate. The
legal battle, which began in 2002, is scheduled to come to trial this fall.
Bankrate says the lawsuit is "factually and legally without merit." Thomas Evans,
Bankrate's chief executive officer, says that since he took over in 2004, the company has
stepped up efforts to make sure lenders stand behind their advertised rates and won't
hesitate to suspend advertisers who break the rules. Before, it was "like asking Barney
Fife to monitor the town and not giving him a gun," he says. "It's a much more aggressive
policy today than it was two years ago."
The court battle illustrates the potential hazards in the fast-expanding world of online
commerce and highlights the need for healthy skepticism about experts who provide data
and advice while at the same time benefiting from the sale of financial products.
Residential mortgages taken out online have totaled $100 billion a year on average since
2003, estimates Inside Mortgage Finance, a trade publication that tracks home-loan data.
Some financial experts recommend bankrate.com and other Internet sites, including
LendingTree, a unit of IAC/InterActiveCorp, and E-Loan, owned by Popular Inc., as
useful tools for comparing a wide range of deals on financial products, in addition to
getting quotes from local lenders.
Bankrate's legal battle traces back to 2002, when online mortgage lender American
Interbanc Mortgage LLC, of Irvine, Calif., sued several lenders advertising on
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 34 of 37
bankrate.com, accusing them of false advertising. It added Bankrate as a defendant a year
later, alleging Bankrate ignored evidence of bait-and-switch advertising and yielded to
pressure from other defendants to kick American Interbanc off its Web site. The suit,
being heard in Orange County Superior Court, seeks $16.5 million in damages and a
minimum $33 million in punitive damages, according to a Bankrate regulatory filing.
Bankrate says in court papers that it declined to renew American Interbanc's contract in
August 2002 after the relationship reached an intolerable "level of hostility."
At the center of the case is a bankrate.com feature that asks mortgage shoppers to enter
information about the mortgage they want, including their location, the desired loan type
and how much they want to borrow. The Web site provides a "rate table" that lists offers
from a number of lenders advertising on the site.
Mike Dannelley, American Interbanc's founder, alleges customers who click through to
specific lenders often aren't given the deals that are offered on the rate tables. Although
borrowers aren't required to take the more costly loan, the practice can waste time in
booking a mortgage and leaves some consumers vulnerable to accepting a higher rate.
Mr. Dannelley's lawyers claim their review of Bankrate records identified 529
complaints, from consumers and lenders, who claimed Bankrate's advertisers weren't
playing fair. Most of the complaints were lodged before Mr. Evans took over as Bankrate
chief in June 2004, though some date to late 2004 and 2005.
In one complaint last year, Steve Knerly, a federal law enforcement instructor in Glynco,
Ga., says a bankrate.com lender failed to honor an offer for a 3.875% adjustable-rate
mortgage, which it posted on the Web site and then reiterated after he went through a
"pre-approval" process, according to court records. The lender said it was a mistake, but
"I felt it was just a pure and simple bait-and-switch deal," Mr. Knerly said in an
interview. Instead, he found an adjustable loan starting at 4.25% through a mortgage
broker.
Bryan Snow, who wrote Bankrate to complain in late 2003, said in an interview that
several lenders he found on bankrate.com quoted him rates and fees that were higher than
what they had advertised on the site. "You start to pick a rate that's a point higher than the
lowest rate that's listed, because you assume those are the more-credible companies,"
says Mr. Snow, who works as a communications director in Charlotte, N.C.
Dana Bain, president of Premiere Mortgage Services, in Sterling, Mass., says he
advertised on bankrate.com as recently as last September, but stopped because other
advertisers were posting interest rates that weren't honored. "It's not a level playing field,"
he says.
Bankrate says the complaints it has received represent a tiny fraction of the more than 40
million people who visit the site yearly and that it works diligently to resolve borrowers'
concerns. The company says when it gets a complaint about a lender not honoring
advertised prices, it conducts a "mystery shop" test, assigning a Bankrate employee to
pose as a borrower and call the lender to check its rates and fees. If the lender fails that
test, Bankrate says, it will temporarily suspend the lender from advertising on the site.
"It's a pretty onerous policy and we bounce dozens of people a month," Mr. Evans, the
CEO, says.
25. Lawyers claim their review of Bankrate records identified _____ complaints, from
consumers and lenders, who claimed Bankrate's advertisers weren't playing fair.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 35 of 37
a. 529 Correct
b. 1529
c. 2529
d. 5529
How You Interact With Your Kids Today Can Affect Their Future Romantic Lives
By SUE SHELLENBARGER
July 13, 2006; Page D1
http://online.wsj.com/article/SB115274479575305061.html
Frances Wilson is content with the way her three kids are turning out, but one realm
seems beyond her control: their love lives. Her daughter, at 21, is considering marriage a
little too early, the McKinney, Texas, mother says. She also says she worries that her son,
a 19-year-old Marine, might get snatched up by a gold digger targeting his "health
benefits and steady paycheck."
Researchers have some good news for Ms. Wilson and others like her: Parents have a lot
more influence on the quality of kids' romances than most think. Contrary to the
widespread view that kids' dating relationships are irrevocably shaped by peer pressure or
the example set by parents' marriages, new studies show parents' own relationships with
their children through adolescence have a more direct impact on young adults' ability to
form happy, healthy romantic relationships.
Having divorced parents has been linked in research by Paul Amato, a Pennsylvania State
University sociology professor, and others to a 50% to 100% higher probability of
divorce among children. Now, plying observational techniques previously used only to
study adult marriages, scientists have been able to tease out the mechanisms by which
specific parental behaviors affect kids. These studies suggest it is how parents relate to
their children that has the most direct impact, regardless of the marital bliss -- or lack of it
-- in the parents' marriages.
The large influence of the parent-child interactions on a child's romantic relationships
"surprises people constantly," says W. Andrew Collins, a professor in the University of
Minnesota's Institute of Child Development, and lead researcher on a 30-year study of the
subject. Although peers and other factors play a role, "where the rubber really meets the
road" in shaping future relationships "is the way the parent treats the child and relates
with the child. That's the laboratory in which the child learns how to relate lovingly with
other people."
Among the most influential factors: whether parents teach kids to resolve conflicts well;
whether they're warm and nurturing; whether they show interest in teens' activities and
set good limits and appropriate parent-child role boundaries; and whether they avoid
fostering feelings of rejection in their kids.
Although I'm divorced, I, like many parents, want for my children the rewards of a happy
lifelong marriage. For those who wish to snatch victory for their children from the jaws
of their own marital defeat, the research holds out hope.
"If parents model good relationship skills, as well as good parenting skills, then children
are likely to learn these and reproduce them in their own adult relationships," Dr. Amato
says.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 36 of 37
In a five-year study of 290 subjects from their late teens through mid-20s, Brent
Donnellan, a psychology professor at Michigan State University, and others found
nurturing, responsive and firm parental treatment of kids observed in the senior year of
high school was linked to higher quality romantic relationships and marriages among the
same children observed five and seven years later. "Parenting predicted subsequent
behavior in romantic relationships," independent of the state of parents' marriages, the
study says. Researchers interviewed subjects and videotaped them interacting with their
families and romantic partners or spouses.
Scott White, Montclair, N.J., takes pains to show his children he respects and likes them - the same way he wants them to be treated by romantic partners -- and tries to be
constantly mindful of what they're experiencing in relationships. When his daughter, 14,
had an argument with a boyfriend recently, he listened to her viewpoint, then explained
how her friend might have been feeling. His daughter soon made peace with the friend by
talking the problem through, says Mr. White, a high-school guidance director.
Teaching kids to argue rationally also predicts healthy romances, according to a study of
58 families, teens and their dating partners co-written by Nancy Darling, a psychology
professor at Oberlin College, Oberlin, Ohio. A child who shows good conflict-resolution
skills with parents is likely to bring the same skills to a romantic relationship, Dr. Darling
says. For example, a poorly skilled child resisting a parent's instruction to wear a bike
helmet might get angry and storm out of the room yelling. A skillful child might calmly
lay out arguments in his or her favor, such as the low probability of being injured. The
latter path bodes well for happy long-lasting romance.
Appropriate parent-child boundaries -- not trying to be kids' buddies or expect them to
take over the parent role -- is another foundation-stone for healthy dating. In studying 180
subjects and their parents from birth through their mid-20s, including lab observations of
interactions with romantic partners, Dr. Collins and a co-author found in a study
published last year that parents with bad role boundaries when their kids were 13 sharply
increased the chances of the offspring getting into violent or abusive relationships in their
early 20s.
Because the parent-child bond is where teens learn to respect others and honor their
limits, bad boundaries can foster lasting anger and resentment, Dr. Collins says.
Consciously or not, parents tend to slip up in this area during marital strife or divorce,
switching roles with their children.
For Ms. Wilson, who has been married 26 years, the research suggests the
straightforward, clear communication she has modeled for her children further increases
their chances of forming healthy marriages. For example, she's glad to see her daughter
tackle issues head-on with her boyfriend.
"She's a real good communicator," Ms. Wilson says. Amid today's high divorce rates,
"it's very reassuring" to know those interpersonal skills improve her marital odds.
26. New studies show that ________ has a large impact on children’s healthy future
romantic relationships.
a. divorce
b. the parent-child bond
c. appropriate parent-child boundaries
d. both b and c Correct
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 37 of 37