The Wall Street Journal Weekly Quiz s1

The Wall Street Journal Weekly Quiz Covering front-page articles from June 6 – 10, 2005 Professor Guide with Summaries Issue #2 Summer 2005 Developed by: Scott R. Homan Ph.D., Purdue University

Questions 1 – 12 from The First Section, Section A

Promotion Track Fades for Those Starting at Bottom By JOEL MILLMAN June 6, 2005; Page A1 http://online.wsj.com/article/0,,SB111802315797151471,00.html

NEW YORK -- Unwed, unemployed and saddled with three young sons, Valerie Beatty hit bottom in 1989 when she was 25 years old. The daughter of a middle-class Harlem family, Ms. Beatty recalls she abandoned hope of what she calls "bettering myself." Too broke to pay tuition at Bronx Community College, she dropped out and scraped by on food stamps, baby-sitting jobs and whatever cash her boys' father gave her to buy school clothes. "I had my kids," she shrugs, "and that was about it." Then her life began to turn around, thanks to a cleaner's job she landed in 1992 with the Metropolitan Transportation Authority, a state agency that runs New York City's buses and subways. The job paid only $18,000 a year but put her on a track for training and promotions. Within a decade, she advanced from cleaner to subway motor inspector. Today she makes $50,000 a year and lives in a tidy ranch home on Long Island. Now 41, she ticks off her next goals: seeing her sons graduate from college, building a retirement home and opening a restaurant. But the train that Ms. Beatty and many other black New Yorkers rode into the middle class is slowing down. The MTA was once full of jobs like motor inspector or turnstile repairman -- jobs that a person with limited education could jump to with some training. As in the corporate world, many of those jobs have disappeared, often because technology upgrades mean fewer people are needed. At the MTA, for example, new subway cars last 138,000 miles between overhauls, compared with 8,000 miles in 1982. Around the system, the jobs that do open often require a college education and computer skills. Overall, the pace of hiring has slowed since the 1980s, as the MTA reduced its staff by 13%, to 48,000. When the MTA does fill new jobs, it is less likely to promote from within because it believes it will attract better talent on the outside. In the 1990s, insiders got half the new jobs; today they get fewer than 40%. Car cleaners used to have the inside track for promotion to motorman, tower operator and token-booth clerk. Since 2001, those jobs have been thrown open to outsiders."For too many of our people, entry-level no longer means entry-level. It means dead-end," says Rodney Glenn, director of training for Transport Workers Union Local 100, to which 30,000 MTA employees belong. 1. Overall, the pace of hiring at the Metropolitan Transportation Authority _____. a. has slowed since the 1980s, reducing staff by 13% Correct b. has slowed since the 1980s, reducing staff by 73% c. has increased since the 1980s, increasing staff by 13% d. has increased since the 1980s, increasing staff by 73% © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 1 of 25 2. When the MTA does fill new jobs, ______. a. it is more likely to promote from within b. it is more likely to promote from entry level jobs c. it is less likely to promote from entry level jobs d. it is less likely to promote from within Correct

Cases, Fines Soar In Fraud Probes Of Drug Pricing By JOHN R. WILKE June 7, 2005; Page A1 http://online.wsj.com/article/0,,SB111811693102452697,00.html

Months before a new law kicks in that will dramatically escalate government spending on drugs, state and federal prosecutors are investigating 150 cases that involve alleged pricing fraud by some of the world's largest drug makers and could produce more than $1 billion in criminal fines and civil penalties this year. The cases are part of an expanding industry wide investigation of drug pricing that has produced scores of lawsuits currently under seal in courts around the country. They are focused on allegations that drug companies cheat state and federal health-care programs by inflating prices, offering undisclosed rebates to distributors or marketing drugs for unapproved uses, according to lawyers and officials involved in these cases. A half-dozen major drug makers have already paid fines and penalties to settle charges in the past two years. At least three more -- Serono Inc., Abbott Laboratories Inc. and King Pharmaceuticals Inc. -- are expected to face similar allegations and possible criminal fines or civil penalties this year. Prosecutors also could force these companies to accept "corporate integrity agreements" that include tough federal oversight of the way the companies price and market drugs under government-paid health-care programs, including Medicaid and Medicare. The recent surge in cases reflects increasing scrutiny of drug makers' pricing practices and a sharp rise in federal and state prosecutions of health-care fraud. Prescription drugs represent an ever-larger share of the nation's health bill, and the federal government is preparing for a huge increase in spending when the new Medicare drug benefit goes into effect in January. It will cover prescription drugs for the first time for more than 40 million Americans and will cost an estimated $720 billion in its first 10 years. With these huge increases on the way, Senate Finance Committee Chairman Charles Grassley, an Iowa Republican, has pressed the Justice Department to step up fraud enforcement. While the criminal and civil penalties and settlements represent a small fraction of drug-company profits, they are rising fast. Fines and penalties this year could amount to almost twice the totals paid in each of the past three years, officials said.

3. Federal prosecutors are investigating 150 cases that involve ______by some of the world's largest drug makers. a. alleged pricing fraud Correct b. patent fraud

4. Federal criminal fines and civil penalties against drug makers this year could exceed more than ______. a. $ 100,000.00 b. $ 1,000,000.00 c. $ 1,000,000,000.00 Correct d. $ 10,000,000,000.00

How a Global Web of Activists Gives Coke Problems in India By STEVE STECKLOW June 7, 2005; Page A1 http://online.wsj.com/article/0,,SB111809496051452182,00.html Amit Srivastava doesn't own a car or a house. He runs a nonprofit, activist organization in California that has only one full-time employee -- himself. But he has been helping shake up one of the world's biggest corporations, Coca-Cola Co., thousands of miles away in India. Speaking on a tour of U.S. college campuses in April, he accused Coke of egregious offenses in India: stealing water, poisoning land and selling drinks laced with dangerous pesticides. "It is destroying lives, it is destroying livelihoods and it is destroying communities all across India," the pony-tailed, 39-year-old college dropout told dozens of students at Smith College in Northampton, Mass. "That is the story of Coca-Cola in India."Coca-Cola, which considers India a crucial element in its plans for global growth, wasn't invited by Smith to tell its version of the story. But the Atlanta-based soft-drinks giant is well aware of Mr. Srivastava's activities. Coke acknowledges he is a central figure in a burgeoning global campaign by nonprofits -- commonly known abroad as nongovernmental organizations, or NGOs -- that has cost it millions of dollars in lost sales and legal fees in India, and growing damage to its reputation elsewhere. Mr. Srivastava and the NGOs have flagged some serious issues, such as Coke's onetime practice of giving away waste material to local farmers that some studies later showed contained toxic materials. But amid the heated rhetoric, there have been some dubious claims as well. Mr. Srivastava, for example, has compared Coke's environmental practices to the industrial accident at Bhopal, which killed thousands. Amid the NGOs' campaign, Coca-Cola has been forced to fight legal and legislative battles all across India -- including challenging a court order in the northern state of Rajasthan that would require soft-drink makers to list pesticide residues on their labels. The order was prompted by laboratory tests of soft drinks by a New Delhi-based NGO. The company says the levels are safe. In the southern state of Kerala, local officials shut down a $16 million Coke bottling plant in March 2004 over still-unproven claims by local residents and Indian activists that it drained and polluted local water supplies. The company has been trying ever since to regain the plant's license, fighting a case that has gone all the way to India's Supreme Court. But even if Coke prevails, the company hasn't yet said whether it will reopen the plant. Now Mr. Srivastava is rallying college students in the U.S. and Europe to take up the NGOs' cause. Under pressure from student protesters, at least a half-dozen colleges have decided not to renew contracts with Coke or boycott it, and other campuses are

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 3 of 25 considering similar actions. Schools that have banned Coca-Cola products include Bard College in New York, Carleton College in Minnesota, Oberlin College in Ohio and two colleges in Ireland. Even though he lives in Northern California, Mr. Srivastava has emerged as a key figure in Coke's travails in India. Activists inside and outside the country say he plays an important role in coordinating the activities of far-flung protesters on the subcontinent, and that he has become the point-man for communicating their cause to the outside world. That a one-man NGO armed with just a laptop computer, a Web site and a telephone calling card can, with his allies, influence a huge multinational corporation illustrates the role social activists can play in a world that's going increasingly online. "The moral high ground seems to be anyone with a Web site," complains David Cox, Coke's Hong Kong-based communications director for Asia, who has spent months in India trying to combat the NGOs' allegations with little apparent success. Mr. Srivastava and numerous NGOs both inside and outside India accuse Coke, among other "crimes," of sucking local Indian communities dry through excessive pumping. But the water allegations remain unproven. Kerala's highest court rejected such claims in April, noting that wells there continued to dry up last summer, months after the local Coke plant stopped operating. And a scientific study previously requested by the court found that while the plant had "aggravated the water scarcity situation," the "most significant factor" was a lack of rainfall. The NGOs respond that Coke shouldn't be locating bottling plants in drought-stricken areas. From Coke's point of view, Mr. Srivastava and other activists "are making false environmental allegations against us to further an antiglobalization agenda," says Mr. Cox. 5. Amit Srivastava runs a nonprofit, activist organization in California that is targeting ______. a. Coca-Cola Co Correct b. Pepsi Cola Co c. Taco Bell d. KFC

6. Mr. Srivastava’s activities are primarily targeted toward the country of _____. a. China b. Japan c. India Correct d. South Africa

A Migrant Worker Sees Rural Home In a New Light By LESLIE T. CHANG June 8, 2005; Page A1 http://online.wsj.com/article/0,,SB111818776639053518,00.html DAJIN, China -- For the trip home, Lu Qingmin carried a down jacket, traditional medicine whose chief ingredient was donkey hide, a pink Dooney & Burke purse made by her factory, Nestlé milk powder and a heart-shaped box of candy. She also brought 1,000 yuan -- about $120, a month's pay that was worth half as much as her parents' annual cotton crop. These were gifts for her family. For herself, she brought a mobile

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 4 of 25 phone, an MP3 player, and a makeup mirror she consulted from time to time. The bus crossed the Yangtze River on a February morning, one week before the Chinese New Year. It takes 22 hours -- three buses and an overnight train -- to get from the city of Dongguan to the Hubei countryside 700 miles away. Lu Qingmin, known as Min to her friends, was coming home for the first time since leaving her rural village two years ago to find factory work in the city. The bus turned off the highway and Min, 18 years old, spotted her mother. Chen Meirong, 42, was a handsome woman with deep-set brown eyes and prominent cheekbones, who smiled but said little. As they walked down the town's one street and hailed a motorcycle taxi home, Min did the talking. She wanted to buy a DVD player for the house. "Let's buy a hot-water dispenser," she said next. "That way it's more convenient." At home over bowls of noodles with liver, Min's mother put three eggs in her bowl in honor of her homecoming. Min's father said he wanted to buy a motorcycle. Min said that would cost 8,000 yuan, close to $1,000. Her father, 48, said he could buy one for a third of that price. "That's no good," said Min. "Do you want to spend all your time repairing it?" After lunch, the phone rang. It was a friend of Min's, calling from the city. "My mother is happy to death to see me," Min reported. "My mother and father have aged a lot. And the house is all messy and cold. You don't feel like doing anything but sleeping." China has 114 million migrant workers, the largest migration in human history. As the country moves to a market economy, young people who grew up in the countryside are leaving to work in the factories, restaurants, hair salons and construction sites of cities. Urban China offers them hard work and tough conditions but also adventure and opportunity. In a world without parents to guide them, young migrants rely on each other to find jobs and help navigate their new lives. Amid journeys to strange places and the looming unknown of the future, there is one fixed point: A farming village that is home. In the 40 days around the Lunar New Year holiday, 140 million people travel on China's trains -- more than three times the number of Europeans who emigrated to the U.S. over a century. Homecomings may be happy, but they also highlight the rapid changes in Chinese society that can lead to clashes and discord. In the countryside, a family eats and farms together and sleeps in one big bed. Older people, especially men, traditionally make decisions. The eldest children discipline younger ones, and younger ones obey. Guests visit unannounced and stay for days, easily absorbed into communal routines. There are no secrets in village life, and interactions between any two villagers are predetermined according to the kinship ties between them. In cities, this way of life is already dead. In the countryside, migration is putting an end to it. Young people return home with modern ideas and money -- and secrets from a city life their parents don't understand. They have lived among strangers, competed for jobs and promotions, and dated whom they pleased. The village can't easily take them back. Min spent her first days back at home on a modernization campaign. At meals, she lectured her father not to smoke and told him to rinse his mouth out with tea to keep his teeth from turning black. She plotted improvements to the house: indoor plumbing, a washing machine, a walk of poured concrete. (Min's migration to the city was the subject of a front-page article in The Wall Street Journal in November.)

7. In order for Lu Qingmin to return home 700 miles she had to travel for ___ hours using three buses and an overnight train. a. 10 b. 12

8. In the 40 days around the Lunar New Year holiday, ______people travel on China's trains. a. 100 million b. 120 million c. 140 million Correct d. 1 Billion

In Treating U.S. After Bubble, Fed Helped Create New Threats By GREG IP June 9, 2005; Page A1 http://online.wsj.com/article/0,,SB111827961530054968,00.html By many yardsticks, the Federal Reserve's response to the bursting of the stock and tech- spending bubbles in 2000 has been a remarkable success. The 2001 recession was mild and economic growth since has been brisk. Employment is up and inflation remains within the Fed's hallowed zone of price stability. But five years after the stock market's peak, the economy faces other threatening imbalances: a potential housing bubble, rock- bottom personal saving rates and a gargantuan trade deficit. And the Fed's post-bubble prescription bears some responsibility for all three. Fed officials acknowledge as much but say the alternatives were worse. By slashing short-term interest rates to 45-year lows, the Fed encouraged Americans to borrow more, gave them little reward for saving and helped ignite a surge in housing prices. President Bush and Congress joined in with steep tax cuts that boosted household purchasing power. All that spending contributed to a growing U.S. economy, a steady increase in imports and -- given that Americans are so eager to borrow and foreigners so eager to lend -- a mountain of foreign debt.This is pleasant for Americans as long as it lasts. But Fed officials, international financial watchdogs and private economists say it can't. At some point, American consumers must spend less, save more and rely less on foreigners' savings. How that will happen puts the nation in uncharted territory: After treating a bubble, how does the Fed manage the side effects of its medicine? "We have done what no other economy has done before, faced with an asset bubble," Lawrence Lindsey, a former Fed governor and Bush adviser, said at a recent panel discussion. Praising both the Fed's rate cuts and Mr. Bush's tax cuts, he said, "This is the first time in history the textbook economic policy... was used, and worked. The problem is, once you finish that chapter of the economic texts, you turn the page and the page is blank -- because no one has gone through the process before."

The Fed is confident these imbalances will be resolved with little pain. As it raises interest rates, consumers will slow their spending and save more. Foreigners' appetite for U.S. goods will rise. The engine of U.S. growth will shift smoothly from consumers and government to business investment and exports. Fed Chairman Alan Greenspan might address this when he testifies on the economic outlook to Congress today. But a minority of economists warn of a more damaging scenario. Some say the Fed has simply replaced the stock-market bubble with one in housing, which could burst. That would sap the consumer spending that mortgage refinancing and home-equity loans have fueled. Or

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 6 of 25 foreign investors could stop buying U.S. stocks and bonds, sending the dollar down and inflation up, prompting both the Fed and bond market to jack up interest rates sharply. In either case, the U.S. economy could slow sharply or fall into recession. Faced with an asset bubble, a central bank has two choices: Prick it early or wait for it to burst and try to contain the damage. The Fed in 1929 and the Bank of Japan in 1989 tried the first route, raising interest rates in response to rapidly rising asset prices. The result in the U.S. in the 1930s was depression and deflation. In Japan it was stagnation and deflation that continues today.

In the 1990s, Mr. Greenspan chose the second route. As long as the prices of goods and services were stable, he would leave the stock market alone. When the stock bubble finally burst, the Fed cut short-term rates aggressively beginning in 2001 and then held them at a 45-year low of 1% through early 2004 until the Fed was sure the threat of deflation had receded. Mr. Greenspan knew his strategy carried risks. But he saw far greater ones in responding timidly as the collapse of the biggest asset bubble in history wiped out more than $5 trillion in shareholder value, and terrorist attacks, war and corporate scandal rattled confidence. The economic expansion to date suggests he was right, and the odds are that he will retire as scheduled next January with his reputation for economic stewardship intact. But if a collapse in housing prices or a run on the dollar triggers a new recession, Mr. Greenspan's legacy may be different. The Fed is conducting a "crucial experiment" in post-bubble monetary policy, says Edward Chancellor, a financial historian. "We don't know what the outcome is yet."

9. By many yardsticks, the Federal Reserve's response to the bursting of the stock and tech-spending bubbles in 2000 has been ______. a. a success Correct b. a failure c. dangerous to companies d. dangerous to investors

10. By slashing short-term interest rates to 45-year lows, the Fed encouraged Americans ______. a. to save more b. to go to college c. to borrow more Correct d. to travel abroad

After Four Years in the Rear, Boeing Is Set to Jet Past Airbus By J. LYNN LUNSFORD and DANIEL MICHAELS June 10, 2005; Page A1 http://online.wsj.com/article/0,,SB111836288813355992,00.html Six months ago, Airbus's top salesman John Leahy looked unstoppable. The European jet maker had already surpassed Boeing Co. as the No. 1 builder of jetliners. Last year, it trounced Boeing in every key sales campaign. When Boeing replaced its chief salesman, Mr. Leahy took the opportunity to publicly mock his rival for "doing a good job of not selling airplanes." Since then, the U.S. giant has handed

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 7 of 25 Mr. Leahy his hat. Underlining how quickly fortunes can swing in this storied business rivalry, Boeing is on track this year to win more new orders than Airbus after four years in second place, both companies say. At the heart of today's race is the market for the industry's workhorses: the midsize planes used on transcontinental and transoceanic flights. Propelling Boeing back into the lead is the 787, the first plane to be designed from scratch since the 9/11 terrorist attacks and the first to fully take into account the industry's dramatic transformation. As the airline business struggles with its worst financial crisis ever, Boeing designed a plane that could easily shift out of one carrier's fleet into another. Instead of loading it with customized features, Boeing made it easier for the powerful companies who finance such purchases to move or resell the plane to another airline. One example: making sure one brand of engine can be quickly and inexpensively swapped for another. That would help move a plane to another airline with a different engine preference. Boeing is also promising customers cost savings from new materials and systems that make its plane more efficient. Air Canada Chief Executive Robert Milton calls the Boeing 787 a "game changer." Just a few years ago, he appeared in an Airbus sales video saying anyone flying non-Airbus planes would be "left in the dust." Swayed by Boeing's pricing and promises of operating efficiency, Air Canada in late April announced plans to replace its entire long-range fleet of mainly Airbus planes with Boeing jets. "We were totally outmaneuvered at Air Canada," Mr. Leahy says. Boeing, based in Chicago, and Airbus, based in Toulouse, France, are the world's only manufacturers of large passenger planes and are constantly trying to beat up on each other. Airbus had counted on hitting the world stage as the undisputed king of the industry at this year's Paris Air Show, a weeklong global aerospace gathering that starts Monday. But Boeing has racked up a total of 266 orders and commitments for the 787 from 21 airlines. Airbus, on the defensive for the first time in years, is scrambling to improve its competing model. So far it has only landed 30 commitments for its proposed plane, the A350, from two airlines, one of which is bankrupt. Mr. Leahy says while Boeing's bounce caught Airbus off guard, his competitor is "a little unfocused, chasing every deal" and "buying market share" -- criticisms Boeing has long leveled at Airbus. "Basically, they've won the PR game" on the 787, Mr. Leahy says. The sales boss admits his new plane is about a year late. Nonetheless, Mr. Leahy says he will soon announce orders for more than 100 A350s from at least four customers. They could include Emirates Airlines of Dubai and Qatar Airways, according to people familiar with the discussions. "Scrambling from a position of second place has been a powerful motivator," says Scott Carson, a longtime Boeing executive who took over as chief salesman in December. He says years of cutting costs have enabled his company to offer better prices. He denies Mr. Leahy's assertion that Boeing is doing unprofitable deals. "Airbus is always below us on price," Mr. Carson says. "Always." The U.S. aerospace titan still faces a long slog in its attempt to regain dominance. Because of deals already in the pipeline, Airbus is expected to deliver more planes to customers than Boeing for the next few years. But the momentum is swinging toward the U.S. company. Airbus, 80% owned by European Aeronautic Defence & Space Co. and 20% by the United Kingdom's BAE Systems PLC, hoped to exploit the excitement surrounding the two-deck, 555-seat A380 -- the world's largest passenger jet -- which will be on display at the air show. But embarrassing production problems pushed back first deliveries by about six months. In addition, the U.S. last month filed a case with the World Trade Organization accusing European

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 8 of 25 nations of illegally subsidizing Airbus. The EU responded in kind with a suit against the U.S. Customers of both manufacturers are reveling in the renewed rivalry. Says Enrique Dupuy, chief financial officer of Spain's Iberia Airlines, "Boeing is competing like its life depends on it." John Plueger, president and chief operating officer of aircraft-leasing giant International Lease Finance Corp., says competition is good for the industry. "The worst thing that can happen is have one player permanently in the back seat." Both companies see a demand for about 2,500 of the midsize planes. They're intended for long-haul flights and markets where airlines can't consistently fill larger planes. The new planes will seat between 220 and 290 passengers and will replace the world's fleet of aging Boeing 767s, 757s and Airbus A330s.

11. Which model plane has helped Boeing become successful in selling new planes. a. A350 b. A380 c. 777 d. 787 Correct

12. The world's largest passenger jet is the ______. a. A350 b. A380 Correct c. 777 d. 787

Questions 13 – 17 from Marketplace, Section B

Selling Harry: 1 Castle, 70 Kids, 2,000 Bus Ads By JEFFREY A. TRACHTENBERG June 6, 2005; Page B1 http://online.wsj.com/article/0,,SB111801329173851298,00.html How do you market something that's already so popular it doesn't need marketing? Answer: any way you want. Or any way she wants, in the case of J.K. Rowling, whose sixth Harry Potter novel is due out next month. After just seven years, the Harry series is on the short list of the greatest literary phenomena of all time, and shows no signs of flagging: In the U.S. alone, there are now roughly 103 million hardcover and paperback copies in print of the first five Harry Potter titles. Readers eager to buy the "Half-Blood Prince" have already pushed the book to the top-selling position on Amazon.com Inc.'s Web site and on Barnes & Noble Inc.'s retail Web site. In other words, Ms. Rowling's publishers aren't exactly worried about buying enough radio spots. Rather, the marketing logic behind "Harry Potter and the Half-Blood Prince" is very much dictated by the author's goals, which include pleasing her fans and largely bypassing the established media. The strategy is similar to one used by some politicians and movies stars: They eschew multiple magazine and newspaper interviews by going straight to their fans in more benign, controllable appearances. In a

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 9 of 25 departure from the promotion of her last book, Ms. Rowling is not planning to grant any interviews to the press in the United Kingdom when the latest "Harry" installation is published July 16. This time around, the marketing centerpiece is a contest sponsored by her U.K. publisher that will enable 70 youngsters age 8 to 16 to meet and "grill" her after they've traveled to Scotland's Edinburgh Castle as part of a weekend-long celebration surrounding the book's publication. Edinburgh Castle, which dominates the city where Ms. Rowling lives, can be rented for special events. Ms. Rowling and London-based Bloomsbury PLC are ignoring traditional marketing except for a few modest efforts, such as buying space on 2,000 buses across the U.K. to promote the book. Instead, they are using newspapers as a publicity vehicle -- the contest will be conducted by print publications in the U.K. and other papers abroad -- even though pint-size "cub reporters" will usurp the journalist's role. On her Web site, Ms. Rowling says newspapers from Britain, Ireland, South Africa, Australia, New Zealand and Canada will run competitions to select their own reporter. Bookshops and libraries in the U.K. and Ireland will also run a competition, she says. Scholastic Corp., Ms. Rowling's U.S. publisher, is running its own, albeit less splashy, contest, dubbed "Why I Love Reading Harry Potter." Ten winners will be whisked away to London at midnight on July 16 for a four-night stay. Winners will receive a copy of the book on the flight, but they won't have an opportunity to meet Ms. Rowling. A Scholastic spokeswoman says the Bloomsbury contest is totally separate. "They do their thing, we do our thing, and that's how it has only been," she says. Scholastic, she adds, asked Ms. Rowling to conduct two interviews with American reporters. "What we wanted was the interviews, and that's what we asked of Ms. Rowling in our proposal." The bigger contest organized by Bloomsbury -- which is Ms. Rowling's publisher in the U.K., Hong Kong, New Zealand, Australia, Ireland, Singapore and South Africa and co-publisher in Canada -- is already generating its own buzz. Some media outlets participating in the event, says a spokeswoman for Bloomsbury, are simply picking their "reporters" randomly, in effect out of a hat. But many others are promoting the book and themselves via tie-in contests that require writing essays.Among the newspapers participating in the U.K. is the Financial Times. Contest entrants must answer three questions that "only the truly Hogwarts-savvy will know," and submit a 400-word review of a Harry Potter book. "Overall, we wouldn't want the paper to be part of somebody else's marketing campaign, but this is encouraging children to read and write," says Joanna Manning-Cooper, a spokeswoman for the FT. She added that none of the paper's editorial staff have complained. Winners will attend the Harry Potter Launch Weekend July 15 to 17 at Edinburgh Castle, all part of an event that will be televised on that Sunday evening. One perk: Before meeting Ms. Rowling at midnight on the 16th, each "cub reporter" attendee will get a signed copy of "The Half-Blood Prince." Judging by previous demand, such copies could fetch $500 or more on eBay Inc.'s auction Web site. The kids will then spend the weekend reading the book, feasting at a banquet, and participating in a "Children's Press Conference" on July 17, where Ms. Rowling will field questions. In addition, the author will give interviews to two people who separately operate the mugglenet.com1 and the-leaky-cauldron.org2 Harry Potter fan sites. Scholastic says one professional print reporter and one television personality will be allowed to interview Ms. Rowling in Edinburgh separately at another time, but notes their stories won't appear until after the "Half-Blood Prince's" publication date.Scholastic -- slightly more traditional in its efforts -- has also lined up national radio spots, an ad in the form of a

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 10 of 25 crossword puzzle, and a series of video ads that will be seen on various airlines. Some Web site-based advertising is also planned. It's possible that Bloomsbury, too, will have additional marketing plans.Bloomsbury declined to reveal how many copies it is printing of the new book, but "Phoenix" sold 1.7 million in the U.K. in the first 24 hours it was on sale.Scholastic, meanwhile, has already announced a "Half-Blood Prince" first press-run of 10.8 million copies, the largest ever in the U.S. The publisher is also printing a deluxe version that carries a list price of $60 and includes a special art insert.

13. The marketing logic behind "Harry Potter and the Half-Blood Prince" is very much dictated by ______. a. marketing text book strategies b. the author's goals Correct c. the publishers standards policy d. available television and radio time

Job Hopping Overseas Can Enhance a Career, But It Takes Fortitude By JOANN S. LUBLIN June 7, 2005; Page B1 http://online.wsj.com/article/0,,SB111809395926152172,00.html

Job hopping to the distant corners of the world takes pluck, persistence and perspiration -- for starters. Daniel Allen, an experienced American laboratory technician, spent more than five years trying to find a similar position in Europe, including going to Germany for three months to job hunt on site. He concluded he would have to sell himself short to be hired there, and needed something more suited to his abilities. Last month, Mr. Allen got a higher-level job as a field-applications scientist for Molecular Devices in Wilmington, Del. Switching continents to switch jobs can enhance your career. Bilingual global managers "are going to be more and more in demand," predicts Kyung Yoon, a vice chairman of search firm Heidrick & Struggles International. "But the learning curve is very high if you've never lived in that target country before." Despite multiple obstacles, you can snare a cross-continental offer without losing your sanity or your wallet. Specialized skills can give you an edge at lower levels. Bill Lee, an auditor for the California Legislature, longed to see the world years ago. Alerted by a friend, the certified public accountant attended a Japanese job fair in Boston. A software house there picked him to be a financial analyst in Tokyo. He subsequently worked for companies in Japan, Singapore, the Philippines and the U.S. To land higher-level positions abroad, sharpen your networking skills so you're well connected to people with clout at your desired destination. Build deep ties with executive recruiters like Ms. Yoon, who ran Heidrick's Asia practice from Hong Kong before her transfer to Menlo Park, Calif., in early 2002. She often introduces promising U.S. candidates to Asian colleagues. In most cross-continental placements, "we have had a five- or 10-year relationship with someone" and know the person's track record intimately, says Jeff Hauswirth, head of the Toronto office for recruiters Spencer Stuart. Prepare for such a move at least "a year or two in advance," he advises. Extensive involvement in world-wide professional groups raises your visibility. Sign up for an organization's online bulletin board and attend its global

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 11 of 25 meetings. During discussion sessions, describe a groundbreaking work project. Volunteer to substitute if a convention speaker suddenly cancels. Book tables at hot local restaurants, and invite key industry players to join you for a meal. Then give them a well- crafted pitch rather than merely pleading for a foreign post. David Muir once captivated an international conference of movers when he opened a presentation by riding an antique British butcher's bicycle into a Las Vegas hall. The bike basket held a cooked turkey. "I was trying to illustrate it was time for a change in the industry," he says. Officials of Crown Worldwide Group, a Hong Kong firm whose businesses include international relocation, remembered the speech and hired the Scotsman more than a decade later for a California post. He now runs Crown's Europe, Africa and Middle East operations from Prague. Press coverage will raise your global profile, too. Mr. Hauswirth recruited an American to run an ailing Argentinian joint venture about five years ago after reading a trade-publication piece written by the executive. The article described his turnaround of a similar venture in Spain. Seek introductions from overseas customers, suppliers and venture-capital firms, perhaps during business trips to their locale. A Belgian organizational-development specialist eager for a U.S. job recently requested help from the American Management Association's Brussels office, where he was a major client. The office forwarded his résumé and arranged a phone interview with a top human-resources manager at its New York headquarters. The effort has yet to bear fruit, however.

14. For individuals who want to work in overseas assignments ______is a key requirement. a. persistence Correct b. politics c. problem solving d. plain luck

Hitting the Roof By RAY A. SMITH June 8, 2005; Page B1 http://online.wsj.com/article/0,,SB111818950436253596,00.html

When Rhode Island dentist Harvey Waxman retired in 2000, he planned to immerse himself in woodworking, gardening and sailing his boat on nearby Narragansett Bay. Then the property taxes on his two-bedroom home in North Kingstown jumped to $17,000 from $7,000 in four years. Dr. Waxman dropped his hobbies and founded RIGHT, or Rhode Island Gets Honorable Taxation. Today, he travels the state giving speeches calling for changes in the way property taxes are levied. "It just became so clear to me that something was flawed with the system," he says. His campaign may pay off. John J. Loughlin II, a Republican state representative, plans to introduce a bill next year that takes a page from Dr. Waxman's proposal, stating that property taxes for existing homeowners should be based on the amount the owner paid the prior year rather than on a home's fluctuating market value. As home prices have soared across much of the country, property tax bills have often followed. That has prompted the rise of tax activists like Dr. Waxman, who are demanding cuts or at least a slowdown in the increases. Some states and local governments have responded, though many remain cash-strapped despite

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 12 of 25 the increased property-tax revenue. Last year, lawmakers in Illinois and Pennsylvania passed property-tax relief bills in the wake of outcries from angry homeowners. Earlier this year, Maine's legislature passed a bill that boosts the state's share of school funding, caps the spending on government and expands tax-break programs. In New Hampshire, the state Senate is expected to vote this week on a plan to eliminate the statewide property tax. Candidates for New Jersey's governorship are trading dueling plans to cut property taxes. "The outcry is loud now because the increases are taking place at a quite accelerated level over a shorter amount of time," says Daniel R. Mullins, an associate professor of public affairs at American University in Washington, D.C. Property taxes are usually set and collected by cities, towns and counties to fund schools and local services such as police and fire protection, roads and garbage collection. Tax rates and increases vary widely depending on a local government's financial health and the strength of its housing market, so it's hard to generalize about tax increases nationally. But many homeowners are frustrated that their tax bills are going up because homes in their towns are selling for higher prices, and not because they are seeing increased or better services from their municipalities. David Whetsell, a 60-year-old heating and air-conditioning technician in Lexington, S.C., where property taxes have risen 20% a year since 2000, last year started STOPTAX.org. The group pushed heavily for legislation to eliminate property taxes for homes. Such a bill has been introduced by a Republican senator and is expected to be taken up in the state legislature's next session beginning in January. For Peyton Gannaway, a 66-year-old retiree who lives in Crystal Bay, Nev., it was the 233% increase in the tax bill on his five-bedroom waterfront home in 2003 that got him to join a local tax revolt group and protest the increases. "It was pretty breathtaking," says Mr. Gannaway, who unsuccessfully sought a reduction in his bill. He says he understands that home prices are soaring but he is certain "the cost to run the county sure didn't go up that much." In March, Nevada's legislature voted to limit annual tax bill increases for owner- occupied homes to just 3%.

15. What kind of taxes changed how retired Rhode Island dentist Harvey Waxman spends his time? a. sales taxes b. income taxes c. property taxes Correct d. personal taxes

The Laptop Trail By JASON DEAN and PUI-WING TAM June 9, 2005; Page B1 http://online.wsj.com/article/0,,SB111825761813954442,00.html

When a customer in the U.S. clicks on Hewlett-Packard Co.'s Web site to purchase one of its Pavilion zd8000 laptop computers, the order quickly arrives thousands of miles away at a factory in China run by a less-familiar name, Quanta Computer Inc. Although virtually unknown to consumers, Quanta is the world's biggest maker of laptops. As part of a sometimes-difficult symbiosis, the Taiwanese company makes roughly one-quarter of the world's portable computers, which are then sold by brands such as H-P and Dell Inc. Quanta collects components from countries around the world and assembles them at

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 13 of 25 its Quanta Shanghai Manufacture City complex. A look inside the making of a modern laptop PC shows how the process has evolved into the epitome of hyperefficient global production while also navigating a maze of corporate and geopolitical sensitivities. U.S. computer brands now farm out much of their manufacturing to Taiwanese concerns, which also are starting to design more of these products as well. The Taiwanese companies pull together parts to build the computers in China and then ship them to the purchaser, all in a matter of days. Within that finely tuned cycle is a series of delicate balancing acts. Big U.S. brands must weigh the cost benefits of extensive outsourcing against the dangers of ceding too much control to their suppliers, a system that could devolve into creating look-alike or perform-alike products. The contract manufacturers, meanwhile, are struggling with steadily shrinking profit margins as their U.S. customers press to cut prices. To lower labor costs, these Taiwanese assemblers have shifted almost all of their production in recent years to China, despite the continuing tensions between the two sides. Officials in Taipei and Beijing have yet to hash out a resumption of direct transportation across the Taiwan Strait. So executives traveling from Taipei to their factory must fly through Hong Kong or third destination, turning what would be a flight of less than two hours into one that can be a nearly eight-hour trip. Taiwan and China separated in 1949 amid civil war and the Communist takeover of the mainland, but Beijing still claims sovereignty over the island and has threatened war to stop it from formalizing its de facto independence. Throughout the 1990s, Taiwan's government banned manufacturing in China as part of broader restrictions aimed at preventing excessive economic dependence on its massive adversary. By the early part of this decade, Quanta and other manufacturers pushed to tap China's cheap labor. Taiwan lifted the ban in 2001, and the migration of manufacturing was swift. This year, 85% of Taiwanese notebook makers' output is expected to come from China, compared with 4% in 2001, according to Taiwan's government. Quanta, which was founded in 1988 and started production in Shanghai in 2001, now has more than 90% of its output there, using more than 20,000 Chinese employees. Last year, it ended most of its remaining notebook production in Taiwan. Michael Wang, Quanta's chief operating officer, says that manufacturing in China was "unavoidable. We had to move the production over there." China's government has encouraged the trend, seeing investment by companies like Quanta as a way to provide jobs and technological know-how. As a result, the technology industry has become important to China's economy, with foreign electronics manufacturers employing hundreds of thousands of Chinese workers. In fact, eight of China's 10 biggest exporters by value last year were foreign ventures making PCs or other tech gadgets, according to China's Ministry of Commerce. Quanta was No. 2.

16. When a customer in the U.S. clicks on Hewlett-Packard Co.'s Web site to purchase one of its Pavilion zd8000 laptop computers, the order quickly arrives at a factory in ______. a. Florida b. Texas c. China Correct d. Japan

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 14 of 25 UAW Is Facing Biggest Battles In Two Decades By JOSEPH B. WHITE, LEE HAWKINS JR. and KAREN LUNDEGAARD June 10, 2005; Page B1 http://online.wsj.com/article/0,,SB111836453208956049,00.html

From the days when founding President Walter Reuther was beaten up by company toughs, to the dark days of the early 1980s, the United Auto Workers union has fought to secure workers at the Big Three auto makers some of the best wages and benefits afforded industrial employees anywhere. Now, UAW President Ron Gettelfinger and other UAW leaders face the union's worst crisis since the late 1970s and early 1980s, when oil price shocks and a surge of Japanese cars forced thousands of layoffs at Detroit's Big Three, and drove Chrysler Corp. to seek a government bailout. How Mr. Gettelfinger handles the challenge could be critical in whether General Motors Corp. and several major U.S. auto parts makers pull out of their recent financial crises. Despite substantial productivity gains at UAW-represented factories, and big improvements in the assembly quality of GM, Ford Motor Co. and DaimlerChrysler AG's Chrysler Group vehicles, the UAW is again facing management demands to give back some of what it has won, particularly in health benefits, or risk even more job losses. Mr. Gettelfinger, who wasn't available for an interview yesterday, rejects the notion that the UAW has to make concessions to car makers for active members and retirees, even as he has negotiated more flexible agreements at other major employers that could result in future UAW members earning less and being fewer in number. "I do get a little bit irritated when I constantly hear and read that the problems are UAW," Mr. Gettelfinger told a popular Detroit morning radio host, Paul W. Smith, Wednesday morning on ABC-affiliate WJR. The question, he says, should be why the U.S. can't create a single-payer, universal health-care system. And he says the U.S. needs a tougher trade policy. "You say we can't rely on Washington," Mr. Gettelfinger told Mr. Smith and his Detroit audience. "Well, why can't we? These people are elected by us, and I think our expectation is way too low." Faced with a series of crises at big Detroit employers, Mr. Gettelfinger, who once worked as a chassis line repairman at a Ford plant, has demonstrated some willingness to bend. Although the UAW has so far protected members at the Big Three auto makers from substantial concessions, outside that bastion, to save jobs the union has increasingly agreed to lower pay and benefits for future workers at smaller auto-parts manufacturers and at some big heavy-equipment makers such as Caterpillar Inc. The Caterpillar contract, reached after a long period of labor-management battles, features lower wages and benefits for new hires and a benefit package substantially smaller than that of the previous contract. New battles are shaping up at GM and Delphi Corp., GM's former auto-parts manufacturing unit. Rick Wagoner, GM's chairman and chief executive, used Tuesday's annual shareholder meeting to deliver his strongest public warning yet that the No. 1 auto maker is prepared to take action to cut its $5.6 billion U.S. health-care bill -- with or without the UAW's agreement. Mr. Wagoner, who has sought to avoid conflict with the union since a costly 1998 strike, said an agreement with the union to cut health costs is "our very strongly preferred approach"; then he added, "Either way, it is crystal

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 15 of 25 clear that we need to achieve a significant reduction in our health-care cost disadvantage and to do so promptly. We are committed to do that."

17. Rick Wagoner, GM's chairman and chief executive, used Tuesday's annual shareholder meeting to deliver his strongest public warning yet that the No. 1 auto maker is prepared to take action to cut its ______. a. health-care costs Correct b. workforce c. need for imported steel d. warranty claims

Questions 18 – 22 from Money & Investing, Section C

Central Banks Remain a Puzzle As Dollar Rises By CRAIG KARMIN and MARY KISSEL June 6, 2005; Page C1 http://online.wsj.com/article/0,,SB111799695008051109,00.html

The dollar is enjoying its best run in about four years, leading traders to call off bets against the greenback and strategists to revise their once-bearish forecasts. Yet the response to this rally -- which accelerated last week on rosier U.S. economic data and jitters about the euro following the rejection of the European Union constitution by French and Dutch voters -- is much less clear from another crucial market participant: central banks. While the world's central banks hold on average more than 60% of their foreign reserves in dollars, many economists believe that diversification into other currencies is inevitable, at least in the longer term. Others think too much has been made of this. "I think that trend is greatly exaggerated by most commentators," says Michael Spencer, chief economist for Asia at Deutsche Bank Securities in Hong Kong. Indeed, some argue that the euros recent decline could slow that process, especially if central bankers worry that rejection of the EU constitution could lead to longer-term problems for the European currency. But diversification into other currencies could pick up if the dollar reverts to an extended bear market. And even a hint that a major central bank, particularly in Asia, may be shifting reserves has been enough to rattle the dollar and disrupt other financial markets. Late Friday in New York, the euro was at $1.2225, not far from its session low at $1.2205 and down from $1.2277 late Thursday in New York. It has dropped nearly 10% against the dollar this year. Meanwhile, the dollar weakened to 107.74 yen from 108.26 yen. It is up more than 5% this year. Officials in Asia, Europe and the Middle East have further fueled speculation in recent months by publicly pronouncing interest in diversifying their holdings. But they have failed to offer any specifics, and the data used to track central-bank reserves remain spotty, heightening confusion in global markets. "The less clarity about reserves, the more likely that investors will act on the basis of faulty information," says Jeffrey Young, head of currency research at Citigroup. "It tends to make the issue of central banks' diversification a greater factor than maybe it should be." Traders will get a peek into

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 16 of 25 foreign-reserve holdings later this month, when the Bank for International Settlements releases its annual report. The International Monetary Fund also will offer a snapshot into central-bank holdings in September.

18. The euro has ______against the dollar this year. a. dropped nearly 90% b. dropped nearly 60% c. dropped nearly 30% d. dropped nearly 10% Correct

His Decade of Chasing Skilling By JOHN R. EMSHWILLER June 7, 2005; Page C1 http://online.wsj.com/article/0,,SB111810792577952529,00.html

Years before federal prosecutors and class-action lawyers began dogging Jeffrey Skilling, Bernard Glatzer was chasing the former Enron Corp. chief executive. He still is. Now, Mr. Glatzer wants to question Mr. Skilling under oath before Mr. Skilling's criminal trial, scheduled for January, begins in a federal court in Houston. It isn't a simple task. A New York state-court judge authorized the deposition as part of Mr. Glatzer's latest lawsuit, filed in pursuit of a claim that Enron stole a valuable energy-financing idea from him some 15 years ago. Earlier this year, Mr. Glatzer moved to have a summons served on Mr. Skilling -- along with a required $10 witness fee paid to him -- at his gated Houston mansion. The deposition was blocked, at least temporarily, when Mr. Glatzer's lawsuit was transferred to federal court in New York, where a judge is now weighing its fate. The 57-year-old Mr. Glatzer -- who lives in the Bronx borough of New York City and is living off his investments -- has known more frustration than success in his decade-long legal odyssey. He has seen two previous lawsuits dismissed and reached one settlement that he now claims was breached. He has gone through a string of lawyers, including the firm headed by well-known litigator David Boies. An attorney by training who is looking into new energy-related ventures when he's not litigating, Mr. Glatzer is currently representing himself. At the same time, his efforts have helped raise questions about activities in Enron's early days. Similar, later projects are at the heart of the alleged fraud at Enron. Once a relatively lonely voice in claiming wrongdoing at Enron, Mr. Glatzer has been joined by a chorus that includes the Justice Department and Enron shareholders. Last year, prosecutors filed a broad conspiracy and fraud indictment against Mr. Skilling and other former top Enron executives. All the defendants have pleaded not guilty. Though Mr. Glatzer claims that Mr. Skilling was at the center of the alleged scheme against him, Mr. Glatzer has never named the Enron executive as a defendant in his lawsuits. Instead, he has sued Enron and investment bank Bear Stearns Cos., which allegedly took part in the purported theft. His current suit, claiming some $500 million in damages, is filed against Bear Stearns, though he is also pursuing a claim against Enron in that company's federal bankruptcy proceeding. Enron, Bear Stearns and Mr. Skilling have denied any wrongdoing in connection with Mr. Glatzer. Bear Stearns is seeking to have Mr. Glatzer's latest suit dismissed. Mr. Glatzer says that when he filed his original litigation in the 1990s, he didn't sue Mr. Skilling because Enron and Bear Stearns offered deeper pockets to pursue. These days, Mr. Glatzer adds, Mr. Skilling has so many Enron-

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 17 of 25 related criminal and civil woes that "he isn't going to have any money left" to go after. Still, he views the former Enron chief as the key to his case. "Skilling is the only one who knows everything," says Mr. Glatzer. While working in the energy business in Houston in the 1980s, Mr. Glatzer says he came up with an innovative energy-financing plan that bundled interests in natural-gas production into securities to be sold to institutional investors. He turned to Bear Stearns for help in selling the planned securities. He claims a Bear Stearns official illegally slipped his confidential plan to Mr. Skilling, who had been working as a consultant to Enron before joining the company in 1990. In his latest lawsuit, Mr. Glatzer contends Mr. Skilling used the idea to launch a financing operation that helped Enron secure gas supplies that it could sell, helping it build a hugely successful energy-trading operation.

19. Mr. Glatzer contends Mr. Skilling used his idea to launch a financing operation that helped Enron secure and sell ______. a. electricity towers b. windmill towers c. gas supplies Correct d. coal supplies

Death, Taxes and Volatility By HENNY SENDER June 8, 2005; Page C1 http://online.wsj.com/article/0,,SB111817853557753292,00.html

Last year, many hedge funds blamed a lack of volatility for disappointing returns. Now, with currency and credit markets whipsawed by conflicting trends and signals, the only sure thing is that volatility seems bound to increase. Uncertainty hovers especially strongly over two of the economies that are the most important for financial markets: the U.S., which is the biggest, and the Chinese, which for the past few years has been the swing factor for everything from bullion to bonds. "The market jumps from one extreme to another," says Sun Bae Kim, managing director of economic research at Goldman Sachs Group in Hong Kong. "In the U.S., there is a big hump of deflationary expectations and then another hump where there are fears that strong growth will produce inflation." Meanwhile, in China, he says, a slowing pace of investment is leading to estimates of lower growth, sluggish imports and an inventory buildup. That could mean an even bigger trade surplus, and hence more Chinese purchases of U.S. financial assets -- and U.S. dollars. In this one-hand, other-hand kind of world, many analysts expect the dollar to weaken against Asian currencies, even if the dollar continues rallying against the euro. One of the better hedge-fund trades of late has been shorting dollars against Asian currencies. The bet is both a play on strong growth in Asia as well as an expected revaluation of the Chinese currency. The trade has been especially profitable for funds expecting the dollar to weaken against the South Korean won, which is up 15% over the past 17 months, according to Credit Lyonnais Securities Asia. But even as hedge funds invest in Asian currencies, flows from Asia into the U.S. may swell. For one thing, yields on government bonds in many Asian countries, such as Korea, are actually lower than those in the U.S., making it attractive to borrow there and invest in higher-yielding assets elsewhere. All such trades, though, can quickly reverse, given the lack of conviction in

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 18 of 25 the markets. Perhaps then, the safest trade is to give in to the uncertainty and bet that the volatility will rise. "Put" options are popular with hedge funds, Mr. Kim reports. In buying them, the hedge funds obtain the right, but not the obligation, to sell securities or currencies at a fixed price. At most, a fund is out the small price paid for the option, making the downside a lot more limited than with outright bets.

20. The two economies that are the most important for financial markets now are______. a. China and Japan b. Germany and England c. Canada and Iceland d. U.S. and China Correct

Political Jitters Raise Notion Of Euro's End By CRAIG KARMIN and MICHAEL R. SESIT June 9, 2005; Page C1 http://online.wsj.com/article/0,,SB111823789749754127,00.html

After the recent French and Dutch rejections of the new European Union constitution, a once-unspeakable question is now gingerly being raised: Could the European Economic and Monetary Union, which is at the heart of the euro, come apart? No one expects that soon, despite comments from the Italian welfare minister last week that his country should return to the lira and a recent German magazine poll showing that 56% of respondents would like a return of the mark. But it is an issue long-term investors need to think about as Europe's national economies diverge and as the political tenor from London to Lisbon suggests Europeans want less integration rather than more. Regardless of whether the euro ultimately is scrapped, just the thought of it is making some of Europe's financial markets jittery. Already the euro has been hit, falling nearly 6% against the dollar over the past month, and, despite a rebound earlier this week, many analysts now see the euro falling further by year end. Other markets also are reflecting the new tensions. The difference in yields between German and Dutch government bonds and those of lesser-rated economies -- such as Italy and Greece -- has widened as some wonder about how difficult it will be for the southern Europeans to stay in the monetary union that is the bedrock of the common currency. "Recently, you have had random officials making noises that markets would normally not give a hoot about," says Alan Ruskin, director of research at economic consultants 4Cast Ltd. "But now you're seeing that the market is responsive to any hints that officials are having doubts about the longevity of the euro." Europe's long stretch of poor economic growth and high unemployment rates have made the euro just one of many targets of populist frustration. Moreover, shooting down a referendum or voting out a politician will be an easier route for disgruntled Europeans than abandoning the common currency -- especially since there is no legal framework for existing members to exit from the euro. "This is all needless speculation," says Marc Chandler, a partner at New York-based consultants Terra K. Partners. Not everyone is convinced. Some view the antieuro sentiment as part of a broader populist protest against free trade and economic reform. "This is sort of

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 19 of 25 uncharted territory," says Jim Sarni, managing principal at bond investors Payden & Rygel Investment Management in Los Angeles. He has positions in government and corporate bonds in major European countries. One of the great successes of the euro has been to deepen Europe's capital markets, especially the bond market, which blossomed with the introduction of the common currency in 1999. European government bond yields also converged because of a shared central-bank policy and interest rates. Yet in what some see as a sign that investors are again distinguishing between European economies and their governments' ability to implement structural change, bond yields have been diverging. Italy's 10-year bond, for instance, yielded just 0.09 percentage point more than Germany's 10-year bond earlier this year. That differential is up to 0.22 percentage point and some think it will widen because of Italy's economic woes and large pockets of growing resistance to overhaul. Italy's economy is in recession and, saddled with a strong currency, its goods aren't as competitive on world markets as they were when the euro was much weaker. But no longer in control of its own currency or monetary policy, Italy can't make its exports less costly by devaluing the euro or try to enhance growth by cutting interest rates. And with a budget deficit that already exceeds the limits allowed by the EU's Stability and Growth Pact -- one of the treaties that underpin the euro -- Italy can't easily increase government spending and borrowing.

21. Recently French and Dutch citizens ______a new European Union constitution. a. approved b. supported c. rejected Correct d. drafted

Rough Seas By PETER MCKAY June 10, 2005; Page C1 http://online.wsj.com/article/0,,SB111835961061355896,00.html

If you think commodity markets are soggy lately, check out a closely related barometer that is sending worrisome signals about the global economy: shipping prices. The Baltic Dry Index, a measure of freight rates, has sunk more than 37%, or 1,709 points this year, to 2889, its lowest point in more than 11 months. The index is closely linked to commodities because it focuses on bulk cargo, as opposed to container shipments, which often carry finished goods. In general, if fewer loads of metals, cement, grains and other raw materials are en route to industrial users, production of finished goods is due for a downturn. Shipping stocks have dropped sharply in recent weeks, for reasons that some Wall Street analysts who follow the companies have dubbed seasonal weakness. "Bulk shipping has entered its seasonally soft period and rates are trending downwards," UBS analysts who follow Thai shipping companies wrote a few days ago, predicting a rebound toward September or October as industrial activity picks up again. It may not be so easy to shrug off this year's steep decline. While the index did post a comparable decline through the same date last year, it rose in this period in two of the three previous years. In the down year, 2001, there was a more-modest 15% fall. However you look at it, the commodities sector has its fair share of question marks. The Reuters-CRB commodity

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 20 of 25 index, encompassing 22 natural resources, has slid nearly 6% from a 24-year high in mid- March, to 304.18. One of the big factors that will determine where shipping rates and commodity markets head in the next few months, analysts say, is whether China permits its currency, the yuan, to revalue. The country's trading partners, including the U.S., have been pressuring it to do just that, in order to eliminate what they say is an unfair advantage for Chinese exports. During the past few years, raw materials have headed into that country's bustling ports and come back out as everything from televisions to textiles. If its exports cost more, then China presumably both sells less and imports fewer commodities. Economist James Glassman, of J.P. Morgan Chase & Co., doubts China will allow its currency to revalue, a move that would make its exports more expensive. "It would be different if their growth were being fueled by their domestic economy," he says. "But they need the exports."

22. The Baltic Dry Index, a measure of freight rates, has _____. a. risen more than 7%, b. sunk more than 7%, c. risen more than 37%, d. sunk more than 37% Correct

Questions 23 – 25 from Personal Journal, Section D

GM Plans a New Lineup of Vehicles By JOSEPH B. WHITE June 7, 2005; Page D1 http://online.wsj.com/article/0,,SB111810346591252412,00.html

Under pressure to revive sales, General Motors Corp. is about to unleash an important element of its turnaround effort: A slew of new, better-looking vehicles. But in a market where the big players are launching new models almost every month, Chief Executive Rick Wagoner and his product czar, Vice Chairman Robert Lutz, face a stiff challenge to persuade investors that the cars, trucks and crossovers GM has coming can reverse a trend that has taken GM's U.S. market share to 26% today from 47% in 1976. Although many of its new models won't hit showrooms for months, GM is eager to build some buzz. As its annual shareholders' meeting opens today, GM is under pressure to discuss how it plans to recover from a $1.3 billion first-quarter loss in North America. Mr. Wagoner is expected to highlight the new-model blitz as part of a broader effort to reassure investors. Among the new GM models preparing to launch in the next 30 months: Replacements for the current Chevrolet Tahoe, GMC Yukon and Cadillac Escalade large sport-utility vehicles. The replacements will be an early test of Mr. Lutz's new strategy: Sales of outgoing models -- including the three-vehicle Escalade family -- have tumbled more than 25% in the first five months of this year from a year earlier. Some analysts have blamed that decline on rising gas prices and a shift in consumer tastes away from big SUVs built on truck frames. GM executives have argued that a significant cause of the decline is that the current Chevrolet and GMC models are old. The new models will get slightly better mileage, though, averaging around 20.7 miles a gallon in combined city and highway driving, up from a segment-leading 19.8 miles a gallon today. The auto maker also plans to roll out a new lineup of seven-passenger

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 21 of 25 crossover wagons in an effort to be more competitive with rivals such as the Honda Pilot, Ford Freestyle or Chrysler Pacifica, as well as an almost-total revamp of the Saturn showroom, built around sportier new sedans derived from GM's European Opel models and new crossover models. In contrast to several of the vehicles GM launched in the past year, many models in the coming crop replace weak or aging entries in high-volume -- and in the case of large SUVs, high-profit -- segments. Executives are betting the new vehicles will start to dispel GM's reputation for dull design. As far as consumers are concerned, the new vehicles are the most visible signs of GM's effort to pull itself out of its current tailspin, which has resulted in its debt being downgraded to junk status. Investor Kirk Kerkorian, whose bid to buy another 28 million GM shares at $31 a share is scheduled to expire today, also is placing a big bet on the success of GM's new vehicle strategy. GM has disclosed or hinted at various elements of its product plan piecemeal over the past several months. For example, last year at auto shows, the company displayed a concept vehicle called the Buick Centieme, designed to demonstrate the design direction for a future generation of midsize crossover wagons that would replace vehicles such as the current Buick Rendezvous and Pontiac Aztek in the next two years. GM has said it will launch a total of 14 new or redesigned crossovers of various sizes by 2009.

23. GM's U.S. market share is ______% today from 47% in 1976. a. 76 b. 54 c. 26 Correct d. 22

Discount Airlines Hit Latin America By AMY CHOZICK June 8, 2005; Page D1 http://online.wsj.com/article/0,,SB111818828406853545,00.html

The discount-airline craze that has transformed travel in the U.S., Europe and Asia, is starting to take off in Latin America. Until recently, travelers covering long distances in countries like Brazil, Mexico, and Peru had either to take expensive full-fare flights -- often offered only by small charter carriers -- or else hop aboard a bone-jarring long- distance bus. However, a fast-growing class of discount airlines is starting to establish itself as an alternative. In the past year or so, at least four budget airlines have started offering service or have added cross-border flights serving not only major cities but tourist spots as well. Modeled on discounters like Ireland's Ryanair and U.S.-based Southwest Airlines, the upstart Latin carriers are offering fares as low as $20 between São Paulo and Rio de Janeiro. In some cases, promotional one-way teaser fares have been less than a dollar. Several new carriers are about to join the fray. In July, Mexicana, Mexico's leading international carrier, plans to launch Click, a budget airline that will offer domestic routes from Mexico City to popular but tough-to-reach beach towns like Ixtapa on the West coast and Puerto Escondido, a onetime surfing hot spot now popular among nonsurfers drawn by its pristine beaches. Click also will take over Mexicana's

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 22 of 25 routes to popular Caribbean spots such as Cancún and Playa del Carmen, and is expected to apply discount-airline pricing formulas to them. In December, Brazilian startup GOL Linhas Aéreas Inteligentes SA launched service to Buenos Aires from São Paulo with promotional fares starting around $167 (the lowest fare the Brazilian government would permit at the time) each way, compared with $300 or so on the country's major carriers. This month, the no-frills airline -- expect cold snacks and economy seats -- will begin flights to Santa Cruz, Bolivia, and also says it plans to add service to the capitals of Uruguay and Paraguay in the next few months. The new airline competition corresponds with a surge in tourism to the region. With the euro still strong against the dollar, U.S. citizens are flocking south. While the U.S. dollar has decreased by about 10% against the euro over the past two years, it has gained 7% against the Mexican peso. In Nicaragua, the dollar has been so strong against the Córdoba that a night in a luxury hotel currently goes for about $15 to $25. The relative bargains are driving up travel. International arrivals to Central America are growing by nearly 11% a year, according to a study last year by the World Trade Organization. Tourism to Belize has increased by 50% over the past five years, primarily due to new interest among cruise lines. Peru expects more than a million tourists this year and two million annually by 2010. The carriers can offer substantial savings and convenience for travelers who know what to look for. Nature Air in Costa Rica is serving new destinations like Drake Bay, a wilderness resort town on the beach that used to require a six-hour drive and two-hour boat ride to reach from San José. (Flight time: 40 minutes.) Tikal Jets has made it easier to reach Guatemala's famed Tikal ruins for $99 each way. Air travel in the region has a reputation for being rough around the edges: Lengthy delays are commonplace, and government oversight in the past tended to keep prices sky-high, until a recent wave of deregulation. While traveling on the discounters may be cost-effective, it can cause headaches for vacationers unfamiliar with the region. Some carriers use major airports, but others fly into out-of-the-way landing strips with little or no infrastructure. Costa Rica's Nature Air, for instance, uses an old Sandinista airstrip on its route between San José and Granada, Nicaragua. Some little airports may make announcements only in Spanish or Portuguese. And on Gol, the most affordable flights are offered as part of its night service. Nicknamed corujões (or "owls" in Portuguese), these flights operate between 1 a.m. and 5 a.m. The budget-airline movement in Latin America comes at a time when discount carriers are dramatically reshaping the airline industry around the world. In the U.S., discounter Southwest Airlines has become one of the fastest-growing domestic carriers, expanding in recent years into nonstop transcontinental routes.

24. The discount-airline craze that has transformed travel is starting to take off in ______. a. Iceland b. Latin America Correct c. Mexico d. China

Airline Turmoil Poses Safety Issues By LAURA MECKLER June 9, 2005; Page D1

The Federal Aviation Administration's system for inspecting airlines is failing adequately to police the industry as it struggles with bankruptcies, pressure to cut costs and the rapid rise of discount carriers, according to a new report. Of particular concern is the FAA's monitoring of outsourced aircraft maintenance, a strategy increasingly used by some airlines to reduce their spending. In addition, the report says that the FAA has increased inspections at only three of the five airlines that are at or near bankruptcy. The study also suggests that the FAA, the agency in charge of aviation safety, has failed to respond sufficiently to the growth of low-cost carriers -- in particular their emphasis on quick turnaround times for flights, which leaves less time for maintenance at the gate. The shifting conditions present new risks to safety, the report says. FAA officials sharply disputed many of the findings in the report, issued by the Department of Transportation's Inspector General. FAA spokesman Greg Martin said the audit "vastly underestimates the enormous effort by FAA and industry to achieve the historic safety record that we have." He pointed out -- as does the audit -- that the U.S. aviation system is safer than ever, without a single fatal crash of a large passenger plane in more than three years. Contracting out maintenance has been at the forefront of safety experts' concerns for nearly a decade. It can be cost-effective for airlines to hire outside specialist companies to repair and maintain their aircraft, and the report found an increase in the amount of maintenance being performed by outside contractors, which accounted for 53% of aircraft-maintenance expense as of September 2004, up from 47% in 2002. The concern is that an airline has less direct control and oversight of the work performed by contracting companies. And the number of FAA inspections at outsourced maintenance facilities varied widely. FAA inspectors for one air carrier planned 32 of these inspections, for instance, while inspectors at another airliner planned just seven. The FAA says its inspectors factor outsourced maintenance into their inspection plans, and the airlines maintain that their systems are adequate to assure that contractors do as good a job as the airlines' own mechanics do. Meantime, federal air-safety officials have said they haven't identified any significant increase in maintenance-related problems or incidents caused by faulty maintenance. Nonetheless, some outside safety experts argue that outsourcing poses potential hazards. It's particularly worrisome as the percentage of outsourced maintenance climbs, said John Goglia, a safety consultant who once served on the National Transportation Safety Board. The report cited other maintenance concerns. For instance, such work is increasingly being performed at night -- in some locations, up to 90% of it is done after-hours -- but inspectors spent only 3% of their total time conducting nighttime inspections, the report said. FAA officials responded that, calculated somewhat differently, inspectors spent some 10% of their inspection time on night work. A spokesman for the Air Transport Association, an industry trade group, said the industry has an excellent safety record. "Whatever issues may or may not be impacting the FAA's safety oversight, FAA inspections are secondary to the robust quality-assurance programs the airlines adhere to in overseeing all maintenance work," said spokesman Jack Evans. The current industry turmoil presents the greatest challenge to FAA inspectors since the dramatic growth spurt by low-cost airlines in the 1990s. The current inspection system was created to cope with that phenomenon, and has since been revised to deal with the economic pressures felt by older, mainline carriers. The new Inspector General's report focuses more intently than past audits on the FAA's

© Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 24 of 25 shortcomings in adjusting quickly to airlines' changing economics. In the case of quick turnarounds by budget airlines, for instance, the report said that the short intervals between flights create risks that important safety checks won't be completed or that repairs may be delayed until day's end to keep planes flying on schedule. "We found instances in which air carriers operating with short gate-turnaround time did not adhere to required operating procedures," the report said. For instance, auditors observing three aircraft at one low-cost carrier found 16 maintenance discrepancies that weren't recorded on the logbooks. The report suggested that the carrier was waiting until the last flight of the day landed to record them, so as not to delay departures. The FAA currently faces a number of challenges in doing its job, including budget cuts that are prompting officials to replace only about a third of the 300 safety inspectors they expect to lose this year.Looking to improve its inspections, the FAA has moved away from its traditional system of spot checks, where officials looked over the shoulders of maintenance crews to make sure a variety of safety measures were being performed. Instead, aggregate data are collected about airline performance to help inspectors figure out where to target their energies. 25. Contracting out airline ______has been at the forefront of safety experts' concerns for nearly a decade. a. food service b. maintenance Correct c. pilot training d. flight attendant training