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

Multiple Choice Questions

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

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

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

4. In the mid-1990's, what was the ratio of leverage on Wall Street?
(a) 10-1.
(b) 45-1.
(c) 25-1.
(d) 100-1.

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

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

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

8. 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.

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

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

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

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

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

14. What did Long-Term think about the financial crisis that hit in August of 1998?
(a) It was serious but would recover.
(b) It was not serious but would not recover.
(c) It was not serious.
(d) It was serious and would not recover.

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

Short Answer Questions

1. On what date did Russia declare a debt moratorium?

2. In August 1998, how far down was Long-Term for the month?

3. Who did Long-Term threaten to sue, following a threat not to clear trades?

4. What was the common belief regarding nuclear powers?

5. When the Fed visited Long-Term, what did Hilibrand show them?

(see the answer keys)

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