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. At what level was the swap rate of the United States in April 1998?
(a) Medium.
(b) Non-existant.
(c) Low.
(d) High.

2. In 1998, what type of contracts did Long-Term make with private entities?
(a) Illegal.
(b) Long-term.
(c) Liquid.
(d) Short-term.

3. Who was the Fed Chairman in 1997?
(a) Alan Greenspan.
(b) Warren Buffet.
(c) Hillary Clinton.
(d) Madeleine Albright.

4. When the financial market in Russia collapsed, what were many in the market attempting to do?
(a) Leave the country.
(b) Acquire losing positions.
(c) Release losing positions.
(d) Invest in Italy.

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

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

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

8. What was the result for some banks due to their involvement in the derivatives market?
(a) They were prosecuted.
(b) They went bankrupt.
(c) They were nationally recognized.
(d) They made billions.

9. What was the leverage of Long-Term, following its meeting with the Fed?
(a) 50-1.
(b) 100-1.
(c) 10-1.
(d) 25-1.

10. Who suspended arbitrage operations in April 1998?
(a) Goldman Sachs.
(b) Salomon.
(c) Chase.
(d) Fidelity Bank and Trust.

11. When did Long-Term start losing money?
(a) When the Asian market collapsed.
(b) When Warren Buffet spoke out against Long-Term.
(c) When Meriwether opened a new company.
(d) When arbitrage operations were suspended.

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

13. What was the dollar amount of the premium Long-Term paid for its loan?
(a) $1 billion.
(b) $200 million.
(c) $289 million.
(d) $100 million.

14. When Long-Term met with the Fed, it was obvious they did not have enough money to make it through what?
(a) The fall of China.
(b) A debt call from Russia.
(c) The following week.
(d) Another big hit.

15. What was the credit limit on hedge funds?
(a) $100 million.
(b) There wasn't one.
(c) $1 billion.
(d) $50 million.

Short Answer Questions

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

2. What was Long-Term's signature trade based on?

3. What did Long-Term risk losing if they allowed their assets to fall below five hundred million dollars?

4. What determines the swap rate in a country?

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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