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. Where did the private contracts Long-Term made in 1998 trade?
(a) In Russia.
(b) Overseas.
(c) Privately.
(d) On the exchange.

2. To create a paired-share, what is common stock partnered with?
(a) Preferred stock.
(b) Bond deals.
(c) Private stock.
(d) Shorted stocks.

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

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

5. What did Scholes and Merton think of some of the private trades Long-Term made in 1998?
(a) They supported them.
(b) They did not support them.
(c) They were excited.
(d) They were impressed.

6. What award did Merton and Scholes win for economics?
(a) The Nobel Prize.
(b) The Wall Street Trust.
(c) None of these.
(d) The Academy Award.

7. When Russia began to default on its loans, what did people start doing with their high risk bonds?
(a) Buying.
(b) Selling.
(c) Holding.
(d) Trading.

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

9. 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.

10. What notable player was on vacation during the crisis in Russia?
(a) The president of the United States.
(b) Warren Buffet.
(c) The president of Russia.
(d) Alan Greenspan.

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

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

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

14. 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 made billions.
(d) They were nationally recognized.

15. After the financial crisis in Russia, what did Long-Term regret?
(a) Forcing investors to take back money.
(b) All of these.
(c) Creating private deals.
(d) Creating deals that were not liquid.

Short Answer Questions

1. After the meeting with the Fed, a market movement of what percentage could have ended Long-Term?

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

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

4. In 1998, who published Meriwether's letter to his clients?

5. Who did Long-Term threaten to sue, following a threat not to clear trades?

(see the answer keys)

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