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

Multiple Choice Questions

1. What award did Merton and Scholes win for economics?
(a) The Academy Award.
(b) None of these.
(c) The Wall Street Trust.
(d) The Nobel Prize.

2. In 1997, who awarded Long-Term the loan warrant it had requested?
(a) Chase.
(b) The Cayman Islands Commons.
(c) Union Bank of Switzerland.
(d) Bank of America.

3. What are some of the new markets Long-Term looked into in 1997?
(a) Equities.
(b) Paired-shares.
(c) Stocks.
(d) All of these.

4. What typically happens to stock prices when a merger is revealed?
(a) They go down.
(b) They crash.
(c) They go up.
(d) They stay the same.

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

6. What did Scholes and Merton think of some of the private trades Long-Term made in 1998?
(a) They supported them.
(b) They were impressed.
(c) They did not support them.
(d) They were excited.

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

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

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

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

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

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

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

14. During the financial crisis in 1998, what did the partners keep from the workers?
(a) Hope.
(b) Money.
(c) Information.
(d) Profits.

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

Short Answer Questions

1. In 1996, what was Meriwether encouraging Long-Term to do?

2. When did the Russian market begin to fail?

3. What did the incident on August 21 cost Long-Term?

4. When Long-Term met with the Fed, it was obvious they did not have enough money to make it through what?

5. After the meeting with the Fed, a market movement of what percentage could have ended Long-Term?

(see the answer keys)

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