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

2. Who did Long-Term threaten to sue, following a threat not to clear trades?
(a) Waterhouse Cooper.
(b) Bear Sterns.
(c) Chase.
(d) ING trading.

3. What year was the Federal Reserve System created?
(a) 1995.
(b) 1913.
(c) 1901.
(d) 1950.

4. What was the climate at Long-Term during the Russian financial crisis?
(a) Standard.
(b) Excited.
(c) Confident.
(d) Nervous.

5. In 1998, what market did Long-Term bet would decline?
(a) The Russian market.
(b) The Latin market.
(c) The Asian market.
(d) The U.S. market.

Short Answer Questions

1. When markets get jumpy, what begins to rise?

2. What did Long-Term think about the financial crisis that hit in August of 1998?

3. At what level was the swap rate of the United States in April 1998?

4. When did Long-Term start losing money?

5. Who threatened to stop clearing the trades at Long-Term if their fund fell below a particular amunt?

Short Essay Questions

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

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

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

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

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

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

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

8. Who warned Long-Term about making trades that counted on falling stock prices?

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

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

(see the answer keys)

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