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

Multiple Choice Questions

1. When did Long-Term begin scrambling to raise money?
(a) August 10.
(b) August 2.
(c) August 30.
(d) August 24.

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

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

4. By the end of August 1998, what market had practically stopped trading altogether?
(a) International markets.
(b) Stock markets.
(c) Bond markets.
(d) Gold markets.

5. When markets get jumpy, what begins to rise?
(a) Option prices.
(b) Real estate.
(c) The price of gold.
(d) All of these.

6. How much equity did Long-Term have hold of in 1997?
(a) $1 billion.
(b) $5 billion.
(c) $0.
(d) $100 million.

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

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

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

10. What was Long-Term's signature trade?
(a) The "small build".
(b) The "shining cat".
(c) The "equity vol".
(d) The "mort up".

11. 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.

12. In 1998, what type of contracts did Long-Term make with private entities?
(a) Illegal.
(b) Long-term.
(c) Short-term.
(d) Liquid.

13. What was the internal climate at Long-Term in 1998?
(a) Negative.
(b) Deteriorating.
(c) Positive.
(d) The same as always.

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

15. When Long-Term met with the Fed, it was obvious they did not have enough money to make it through what?
(a) The fall of China.
(b) The following week.
(c) A debt call from Russia.
(d) Another big hit.

Short Answer Questions

1. Who suspended arbitrage operations in April 1998?

2. To create a paired-share, what is common stock partnered with?

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

4. What award did Merton and Scholes win for economics?

5. What did the Fed Chairman want to remove in an effort to create liquidity in the market?

(see the answer keys)

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