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

2. In 1998, who published Meriwether's letter to his clients?
(a) The New Yorker.
(b) Bloomberg.
(c) The New York Times.
(d) The Financial Times.

3. What did Long-Term risk losing if they allowed their assets to fall below five hundred million dollars?
(a) Their office.
(b) The right to trade.
(c) Their workers.
(d) Their relationships with bankers.

4. 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.

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

Short Answer Questions

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

2. In 1998, Long-Term expected prices to do what?

3. The purpose of the Federal Reserve System was to promote what?

4. What companies were selling bonds for Russia?

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

Short Essay Questions

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

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

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

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

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

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

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

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

9. What contributes to the estimation of market volatility?

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

(see the answer keys)

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