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

2. When Russia began to default on its loans, what did people start doing with their high risk bonds?
(a) Buying.
(b) Selling.
(c) Trading.
(d) Holding.

3. What was the result for some banks due to their involvement in the derivatives market?
(a) They made billions.
(b) They were prosecuted.
(c) They went bankrupt.
(d) They were nationally recognized.

4. What was the limitation on borrowing for equity trading?
(a) 50%.
(b) 40%.
(c) 10%.
(d) 25%.

5. What did Long-Term avoid by working with derivatives instead of stocks?
(a) Outside interest.
(b) Fees.
(c) Disclosure.
(d) Profit.

Short Answer Questions

1. What put pressure on the currency in Brazil?

2. What was the common belief regarding nuclear powers?

3. By the end of August 1998, what market had practically stopped trading altogether?

4. In 1996, what was Meriwether encouraging Long-Term to do?

5. In 1998, what were many hedge funds selling insurance against?

Short Essay Questions

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

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

3. What was the Fed's response to Long-Term's exposure?

4. What contributes to the estimation of market volatility?

5. Who was Jon Corzine?

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

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

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

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

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

(see the answer keys)

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