When Genius Failed Test | Final Test - Easy

Roger Lowenstein
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This test consists of 15 multiple choice questions and 5 short answer questions.

Multiple Choice Questions

1. When the Fed visited Long-Term, what did Hilibrand show them?
(a) The new buildings.
(b) The risk aggregator.
(c) The door.
(d) His recent financial model.

2. What put pressure on the currency in Brazil?
(a) Moody's downgraded Brazilian debt.
(b) Warren Buffet paid off Brazilian debt.
(c) The United State balanced the budget.
(d) Goldman's bought out China's debt.

3. What word did people often use to describe Long-Term?
(a) Stupid.
(b) Dangerous.
(c) Genius.
(d) Communist.

4. In August 1998, how far down was Long-Term for the year-to-date?
(a) 10%.
(b) 52%.
(c) 2%.
(d) 35%.

5. How much equity did Long-Term have hold of in 1997?
(a) $5 billion.
(b) $100 million.
(c) $0.
(d) $1 billion.

6. In August 1998, how far down was Long-Term for the month?
(a) 25%.
(b) 10%.
(c) 60%.
(d) 44%.

7. How did regulators respond to the involvement of banks in the derivatives market?
(a) They were worried.
(b) They encouraged it.
(c) There were not concerned.
(d) They were delighted.

8. When did the Russian market begin to fail?
(a) August 1998.
(b) April 1998.
(c) May 1998.
(d) September 1998.

9. How much money did Chase loan Long-Term so that they could continue to clear trades?
(a) $475 million.
(b) $5 million.
(c) $752 million.
(d) $10 million.

10. What resource close to Long-Term began to experience financial difficulties following the financial problems in Russia?
(a) Long-Term's audit company.
(b) Italy.
(c) Latin America.
(d) Long-Term's management company.

11. What did Long-Term risk losing if they allowed their assets to fall below five hundred million dollars?
(a) Their office.
(b) The right to trade.
(c) Their workers.
(d) Their relationships with bankers.

12. Why was Long-Term unable to get out of the situation with Russia?
(a) Russia would not let them.
(b) They did not want to.
(c) Their investments were not liquid.
(d) They had too much money.

13. When Russia first experienced turmoil, Long-Term was confident that what would happen?
(a) Spreads would never meet.
(b) Investors would back out.
(c) Spreads would converge.
(d) The country would recover.

14. The purpose of the Federal Reserve System was to promote what?
(a) Honest investments.
(b) Local investments.
(c) Morality.
(d) Stability.

15. In the mid-1990's, what was the ratio of leverage on Wall Street?
(a) 45-1.
(b) 25-1.
(c) 100-1.
(d) 10-1.

Short Answer Questions

1. What did Scholes and Merton think of some of the private trades Long-Term made in 1998?

2. Who suspended arbitrage operations in April 1998?

3. By the end of August 1998, what market had practically stopped trading altogether?

4. When Long-Term met with the Fed, it was obvious they did not have enough money to make it through what?

5. In 1998, what market did Long-Term bet would decline?

(see the answer keys)

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