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This test consists of 5 multiple choice questions, 5 short answer questions, and 10 short essay questions.

Multiple Choice Questions

1. What group did Meriwether found in 1977?
(a) The Meegen Group.
(b) The Arbitrage Group.
(c) Smith & Meriwether Co.
(d) The Commanders.

2. What did the letter Meriwether sent to his clients claim it was difficult to do with Long-Term?
(a) Lose money.
(b) Take legal action.
(c) Get a job.
(d) Make money.

3. What did Rosenfeld and his friend develop?
(a) Software.
(b) A financial museum.
(c) Energy drinks.
(d) Energy bars.

4. What was the typical scenario for bond investors in 1994?
(a) Substantial gains.
(b) Few invested in bonds.
(c) Minimal gains.
(d) Loss.

5. Who gains from working with hedge funds?
(a) The government.
(b) Managers.
(c) Women.
(d) Impoverished countries.

Short Answer Questions

1. Where was the London office for Long-Term located?

2. How much money did Long-Term earn in 1996?

3. What did a dealer from J.F. Eckstein & Co. want from Meriwether in 1979?

4. What type of government paper was bought in Italy?

5. Who developed the Black-Scholes model?

Short Essay Questions

1. Why did Black and Scholes believe that price changes were random?

2. On what did Long-Term base the claim that it was difficult to lose money with them?

3. Why did bonds lose their value in the 1970's?

4. Why did hedge funds make money for managers?

5. What were the legal limits on hedge fund investors?

6. Why was Meriwether made a partner at Salomon?

7. What was Meriwether's business model for Long-Term?

8. Why were convergence trades the safest trades made by Long-Term?

9. How would a loan from a major bank help the partners at Long-Term make money?

10. What surprise happened when Meriwether was trading Treasury Bill futures?

(see the answer keys)

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