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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 a letter to clients, to what did Long-Term attribute the decrease in profits?
(a) Foolish investments.
(b) Poor margins.
(c) Widening spreads.
(d) Irresponsibility in foreign nations.

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

3. What resource close to Long-Term began to experience financial difficulties following the financial problems in Russia?
(a) Long-Term's management company.
(b) Latin America.
(c) Italy.
(d) Long-Term's audit company.

4. After the meeting with the Fed, a market movement of what percentage could have ended Long-Term?
(a) 10%.
(b) 30%.
(c) 25%.
(d) 1%.

5. 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.

Short Answer Questions

1. In 1997, who awarded Long-Term the loan warrant it had requested?

2. After the Russian financial crisis, what caused further fluctuations in the market?

3. What regulation did Long-Term bypass when trading equities?

4. When did Long-Term start losing money?

5. When Long-Term met with the Fed, it was obvious they did not have enough money to make it through what?

Short Essay Questions

1. What was the financial climate when Merton and Scholes were awarded the Nobel Prize?

2. Following the financial crisis in Russia, what did the partners do to begin raising money?

3. Why did the issue in Russia cost Long-Term money on an initial basis?

4. What strategy led to Long-Term's downfall during the Russian financial crisis?

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

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

7. Who was Jon Corzine?

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

9. What was the risk to the market if Long-Term unraveled?

10. In terms of the spreads in 1998, what was the difference between what Long-Term expected them to do and what they actually did?

(see the answer keys)

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