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

2. What did Long-Term avoid by working with derivatives instead of stocks?
(a) Outside interest.
(b) Profit.
(c) Disclosure.
(d) Fees.

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

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

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

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

7. 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.

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

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

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

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

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

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

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

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

Short Answer Questions

1. What trading date dropped Long-Term below $1 billion in equity?

2. Who threatened to stop clearing the trades at Long-Term if their fund fell below a particular amunt?

3. When Russia began to default on its loans, what did people start doing with their high risk bonds?

4. After the Russian financial crisis, what caused further fluctuations in the market?

5. In 1998, what act led Long-Term to a fall?

(see the answer keys)

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