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

2. In August 1998, how far down was Long-Term for the month?
(a) 25%.
(b) 60%.
(c) 44%.
(d) 10%.

3. After the first bad year experienced by Long-Term, what did its overall record look like?
(a) Mediocre.
(b) Fantastic.
(c) Terrible.
(d) Typical.

4. What was the dollar amount of the premium Long-Term paid for its loan?
(a) $1 billion.
(b) $200 million.
(c) $100 million.
(d) $289 million.

5. Who threatened to stop clearing the trades at Long-Term if their fund fell below a particular amunt?
(a) Goldman Sachs.
(b) Chase.
(c) Fidelity.
(d) Bear Sterns.

Short Answer Questions

1. What was the climate at Long-Term during the Russian financial crisis?

2. Who did Long-Term threaten to sue, following a threat not to clear trades?

3. When Russia first experienced turmoil, Long-Term was confident that what would happen?

4. When did the Russian market begin to fail?

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

Short Essay Questions

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

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

3. In spite of the economic crisis in Russia, what did Meriwether believe about Long-Term's trades?

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

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

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

7. What contributes to the estimation of market volatility?

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

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

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

(see the answer keys)

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