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

Multiple Choice Questions

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

2. In 1998, what market did Long-Term bet would decline?
(a) The U.S. market.
(b) The Russian market.
(c) The Asian market.
(d) The Latin market.

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

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

5. When did Long-Term start losing money?
(a) When Meriwether opened a new company.
(b) When the Asian market collapsed.
(c) When Warren Buffet spoke out against Long-Term.
(d) When arbitrage operations were suspended.

6. What trading date dropped Long-Term below $1 billion in equity?
(a) October 10.
(b) April 15.
(c) September 21.
(d) September 5.

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

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

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

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

11. In 1996, what was Meriwether encouraging Long-Term to do?
(a) Break the law.
(b) Hire new employees.
(c) Investigate new territory.
(d) Stick with the tried and true.

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

13. During the turmoil of 1998, investors avoided Long-Term because they were trying to avoid what?
(a) Short term trades.
(b) Scientific trades.
(c) Long range trades.
(d) Exceptional trades.

14. 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.

15. What determines the swap rate in a country?
(a) Interest rates on the real estate market.
(b) The price of corn.
(c) The price of oil.
(d) Interest rates on government debt.

Short Answer Questions

1. How much money did Chase loan Long-Term so that they could continue to clear trades?

2. What did Scholes and Merton think of some of the private trades Long-Term made in 1998?

3. What was Long-Term's signature trade?

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

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

(see the answer keys)

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