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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. In August 1998, how far down was Long-Term for the month?
(a) 44%.
(b) 25%.
(c) 60%.
(d) 10%.

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

3. Where did the private contracts Long-Term made in 1998 trade?
(a) Privately.
(b) In Russia.
(c) On the exchange.
(d) Overseas.

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

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

Short Answer Questions

1. Who was withdrawing from the hedge fund markets?

2. Once the financial market in Russia collapsed, what did people stop trading?

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

4. During the turmoil of 1998, investors avoided Long-Term because they were trying to avoid what?

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

Short Essay Questions

1. Why did banks and investment banks get involved in the derivatives market?

2. What contributes to the estimation of market volatility?

3. By the end of August 1998, what did the movement in the bond market look like?

4. How much of Long-Term did the Union Bank of Switzerland buy on a hedge?

5. What was the goal of the Federal Reserve when it was created?

6. Why were regulators concerned about the volume of banks and investment banks involved in the derivatives market?

7. In 1997, what was Meriwether encouraging his employees to do?

8. What did Standard & Poor downgrade that would affect Long-Term significantly?

9. When did huge losses begin for Long-Term and why?

10. What move did Salomon make that surprised Long-Term?

(see the answer keys)

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