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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. The purpose of the Federal Reserve System was to promote what?
(a) Stability.
(b) Honest investments.
(c) Morality.
(d) Local investments.

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

3. What put pressure on the currency in Brazil?
(a) Warren Buffet paid off Brazilian debt.
(b) The United State balanced the budget.
(c) Goldman's bought out China's debt.
(d) Moody's downgraded Brazilian debt.

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

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

Short Answer Questions

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

2. In 1996, why was it difficult to continue to find strong profits in arbitrage trades?

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

4. What did the Fed Chairman want to remove in an effort to create liquidity in the market?

5. What did Long-Term risk losing if they allowed their assets to fall below five hundred million dollars?

Short Essay Questions

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

2. Since Long-Term expected stock prices would fall, what did they sell insurance against?

3. What did Long-Term do when they expected stock prices to fall?

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

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

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

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

8. When Meriwether reached out to his clients following the Russian crisis, how did he explain the effect of the situation in Russia?

9. During the financial crisis in 1998, where were the partners finding money?

10. Following the crisis in Russia, what position did investors take that adversely affected Long-Term?

(see the answer keys)

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