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

Multiple Choice Questions

1. What was the limitation on borrowing for equity trading?
(a) 10%.
(b) 50%.
(c) 40%.
(d) 25%.

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

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

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

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

6. After the first bad year experienced by Long-Term, what did its overall record look like?
(a) Terrible.
(b) Fantastic.
(c) Mediocre.
(d) Typical.

7. When the Fed visited Long-Term, what did Hilibrand show them?
(a) The door.
(b) His recent financial model.
(c) The new buildings.
(d) The risk aggregator.

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

9. What did Long-Term risk losing if they allowed their assets to fall below five hundred million dollars?
(a) Their office.
(b) Their workers.
(c) The right to trade.
(d) Their relationships with bankers.

10. What did the incident on August 21 cost Long-Term?
(a) $1 billion.
(b) $200 million.
(c) $150 million.
(d) $2 billion.

11. What regulation did Long-Term bypass when trading equities?
(a) Regulation-C.
(b) Regulation-B.
(c) Regulation-E.
(d) Regulation-T.

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

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

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

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

Short Answer Questions

1. Once the financial market in Russia collapsed, what did people stop trading?

2. Who suspended arbitrage operations in April 1998?

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

4. What companies were selling bonds for Russia?

5. In 1996, what was Meriwether encouraging Long-Term to do?

(see the answer keys)

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