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

2. In 1996, why was it difficult to continue to find strong profits in arbitrage trades?
(a) The market was over-saturated.
(b) The market did not have enough players.
(c) Long-Term did not have investment capital.
(d) It was illegal to perform these trades.

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

4. What companies were selling bonds for Russia?
(a) All of these.
(b) Mom and pop establishments.
(c) Black market traders.
(d) Investment banking firms.

5. By the end of August 1998, what market had practically stopped trading altogether?
(a) Gold markets.
(b) Stock markets.
(c) Bond markets.
(d) International markets.

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

7. How many banks stepped forward to help bail out Long-Term?
(a) 20.
(b) 16.
(c) 2.
(d) 30.

8. In 1996, what was Meriwether encouraging Long-Term to do?
(a) Stick with the tried and true.
(b) Break the law.
(c) Investigate new territory.
(d) Hire new employees.

9. What typically happens to stock prices when a merger is revealed?
(a) They crash.
(b) They stay the same.
(c) They go up.
(d) They go down.

10. In 1998, who published Meriwether's letter to his clients?
(a) The Financial Times.
(b) Bloomberg.
(c) The New Yorker.
(d) The New York Times.

11. During the turmoil of 1998, investors avoided Long-Term because they were trying to avoid what?
(a) Short term trades.
(b) Long range trades.
(c) Exceptional trades.
(d) Scientific trades.

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

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

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

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

Short Answer Questions

1. What was the dollar amount of the premium Long-Term paid for its loan?

2. What was the internal climate at Long-Term in 1998?

3. What notable player was on vacation during the crisis in Russia?

4. What was the result for some banks due to their involvement in the derivatives market?

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

(see the answer keys)

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