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

Multiple Choice Questions

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

2. Who suspended arbitrage operations in April 1998?
(a) Chase.
(b) Fidelity Bank and Trust.
(c) Salomon.
(d) Goldman Sachs.

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

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

5. What did the Fed Chairman want to remove in an effort to create liquidity in the market?
(a) Margin rules.
(b) Stock rules.
(c) Short rules.
(d) Trading rules.

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

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

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

9. What notable player was on vacation during the crisis in Russia?
(a) The president of Russia.
(b) The president of the United States.
(c) Warren Buffet.
(d) Alan Greenspan.

10. When the Fed visited Long-Term, what did Hilibrand show them?
(a) The new buildings.
(b) The risk aggregator.
(c) His recent financial model.
(d) The door.

11. After the first bad year experienced by Long-Term, what did its overall record look like?
(a) Typical.
(b) Mediocre.
(c) Terrible.
(d) Fantastic.

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

13. 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.

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

15. Why was Long-Term unable to get out of the situation with Russia?
(a) They did not want to.
(b) They had too much money.
(c) Their investments were not liquid.
(d) Russia would not let them.

Short Answer Questions

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

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

3. In its first bad year, what did Long-Term maintain?

4. What was the climate at Long-Term during the Russian financial crisis?

5. If the Long-Term fund failed, what would counter parties have to do?

(see the answer keys)

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