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

Multiple Choice Questions

1. Who did Long-Term threaten to sue, following a threat not to clear trades?
(a) ING trading.
(b) Chase.
(c) Waterhouse Cooper.
(d) Bear Sterns.

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

3. What year was the Federal Reserve System created?
(a) 1950.
(b) 1913.
(c) 1901.
(d) 1995.

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

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

6. 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.

7. How did regulators respond to the involvement of banks in the derivatives market?
(a) They were worried.
(b) They encouraged it.
(c) They were delighted.
(d) There were not concerned.

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

9. Once the financial market in Russia collapsed, what did people stop trading?
(a) Corn.
(b) Commodities.
(c) Stocks.
(d) Bonds.

10. What factor was forcing those with hedge funds to sell?
(a) Ample credit.
(b) Toxic assets.
(c) The Fed's involvement.
(d) Lack of credit.

11. In 1998, what act led Long-Term to a fall?
(a) Putting money into Italy.
(b) Shorting the Russian market.
(c) Shorting the U.S. market.
(d) Investing in the Asian market.

12. On what date did Russia declare a debt moratorium?
(a) August 31.
(b) July 4.
(c) August 17.
(d) September 30.

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

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

15. The purpose of the Federal Reserve System was to promote what?
(a) Stability.
(b) Morality.
(c) Honest investments.
(d) Local investments.

Short Answer Questions

1. In the mid-1990's, what was the ratio of leverage on Wall Street?

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

3. What did Long-Term think about the financial crisis that hit in August of 1998?

4. If the Long-Term fund failed, what would counter parties have to do?

5. When the Fed visited Long-Term, what did Hilibrand show them?

(see the answer keys)

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