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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. By the end of August 1998, what market had practically stopped trading altogether?
(a) Bond markets.
(b) Gold markets.
(c) International markets.
(d) Stock markets.

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

3. After the Russian financial crisis, what caused further fluctuations in the market?
(a) Small time investors.
(b) Panicked investors.
(c) Interest from the IRS.
(d) Interest from big oil.

4. Who suspended arbitrage operations in April 1998?
(a) Chase.
(b) Salomon.
(c) Goldman Sachs.
(d) Fidelity Bank and Trust.

5. When markets get jumpy, what begins to rise?
(a) Option prices.
(b) The price of gold.
(c) All of these.
(d) Real estate.

Short Answer Questions

1. What factor was forcing those with hedge funds to sell?

2. In August 1998, how far down was Long-Term for the month?

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

4. On what date did Russia declare a debt moratorium?

5. What notable player was on vacation during the crisis in Russia?

Short Essay Questions

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

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

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

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

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

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

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

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

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

10. What did the Fed determine would happen if Long-Term failed?

(see the answer keys)

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