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

Multiple Choice Questions

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

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

3. To create a paired-share, what is common stock partnered with?
(a) Bond deals.
(b) Shorted stocks.
(c) Preferred stock.
(d) Private stock.

4. When Russia first experienced turmoil, Long-Term was confident that what would happen?
(a) Spreads would converge.
(b) Investors would back out.
(c) Spreads would never meet.
(d) The country would recover.

5. Once crisis hit, how many weeks did it take for the partners to lose $3.6 billion?
(a) 5.
(b) 1.
(c) 52.
(d) 20.

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

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

8. Who was withdrawing from the hedge fund markets?
(a) Foreign countries.
(b) Large investment firms.
(c) Long-Term.
(d) Small investment firms.

9. Who threatened to stop clearing the trades at Long-Term if their fund fell below a particular amunt?
(a) Chase.
(b) Fidelity.
(c) Bear Sterns.
(d) Goldman Sachs.

10. After the meeting with the Fed, a market movement of what percentage could have ended Long-Term?
(a) 1%.
(b) 25%.
(c) 10%.
(d) 30%.

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

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

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

14. After the Russian financial crisis, what caused further fluctuations in the market?
(a) Panicked investors.
(b) Small time investors.
(c) Interest from big oil.
(d) Interest from the IRS.

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

Short Answer Questions

1. During the turmoil of 1998, investors avoided Long-Term because they were trying to avoid what?

2. When markets get jumpy, what begins to rise?

3. In August 1998, how far down was Long-Term for the year-to-date?

4. In a letter to clients, to what did Long-Term attribute the decrease in profits?

5. What was the common belief regarding nuclear powers?

(see the answer keys)

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