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

Multiple Choice Questions

1. What was Long-Term's signature trade based on?
(a) None of these.
(b) Consistency of failure.
(c) Consistency of investments.
(d) Consistency of volatility.

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

3. 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) Another big hit.
(d) The following week.

4. What was the common belief regarding nuclear powers?
(a) They are not stable.
(b) They always default.
(c) They never default.
(d) They do not have capital.

5. What was the first horrible month Long-Term had?
(a) August, 1998.
(b) It never had a horrible month.
(c) July, 1998.
(d) June, 1998.

6. In 1998, Long-Term expected prices to do what?
(a) Stay the same.
(b) Rise.
(c) Fall.
(d) Fluctuate.

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

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

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

10. In 1998, what were many hedge funds selling insurance against?
(a) The U.S. Treasury.
(b) Rising prices.
(c) Falling prices.
(d) The Latin market.

11. When markets get jumpy, what begins to rise?
(a) All of these.
(b) Option prices.
(c) Real estate.
(d) The price of gold.

12. In its first bad year, what did Long-Term maintain?
(a) All of these.
(b) A strong energy.
(c) A great workforce.
(d) A good reputation.

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

14. In 1997, who awarded Long-Term the loan warrant it had requested?
(a) Bank of America.
(b) Union Bank of Switzerland.
(c) The Cayman Islands Commons.
(d) Chase.

15. After the meeting with the Fed, a market movement of what percentage could have ended Long-Term?
(a) 1%.
(b) 30%.
(c) 25%.
(d) 10%.

Short Answer Questions

1. What resource close to Long-Term began to experience financial difficulties following the financial problems in Russia?

2. How did regulators respond to the involvement of banks in the derivatives market?

3. Where did the private contracts Long-Term made in 1998 trade?

4. During the turmoil of 1998, investors avoided Long-Term because they were trying to avoid what?

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

(see the answer keys)

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