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

2. In 1998, Long-Term expected prices to do what?
(a) Stay the same.
(b) Rise.
(c) Fluctuate.
(d) Fall.

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

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

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

6. After the financial crisis in Russia, what did Long-Term regret?
(a) Creating deals that were not liquid.
(b) All of these.
(c) Creating private deals.
(d) Forcing investors to take back money.

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

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

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

10. 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.

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

12. What was the limitation on borrowing for equity trading?
(a) 25%.
(b) 40%.
(c) 10%.
(d) 50%.

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

14. In its first bad year, what did Long-Term maintain?
(a) All of these.
(b) A great workforce.
(c) A strong energy.
(d) A good reputation.

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

Short Answer Questions

1. Why was Long-Term unable to get out of the situation with Russia?

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

3. Where did the private contracts Long-Term made in 1998 trade?

4. What did Long-Term avoid by working with derivatives instead of stocks?

5. What typically happens to stock prices when a merger is revealed?

(see the answer keys)

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