When Genius Failed Test | Final Test - Medium

Roger Lowenstein
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This test consists of 5 multiple choice questions, 5 short answer questions, and 10 short essay questions.

Multiple Choice Questions

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

2. 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.

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

4. If the Long-Term fund failed, what would counter parties have to do?
(a) Give it money to keep going.
(b) Sell.
(c) Buy more stocks.
(d) Nothing.

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

Short Answer Questions

1. What factor was forcing those with hedge funds to sell?

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

3. What was the credit limit on hedge funds?

4. What regulation did Long-Term bypass when trading equities?

5. In 1998, Long-Term expected prices to do what?

Short Essay Questions

1. By the end of August 1998, what did the movement in the bond market look like?

2. When did huge losses begin for Long-Term and why?

3. What did Long-Term do when they expected stock prices to fall?

4. Since Long-Term expected stock prices would fall, what did they sell insurance against?

5. Following the crisis in Russia, what position did investors take that adversely affected Long-Term?

6. In 1997, what was Meriwether encouraging his employees to do?

7. Why did banks and investment banks get involved in the derivatives market?

8. What was the risk to the market if Long-Term unraveled?

9. What did the Fed determine would happen if Long-Term failed?

10. What contributes to the estimation of market volatility?

(see the answer keys)

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