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

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

3. At what level was the swap rate of the United States in April 1998?
(a) Non-existant.
(b) High.
(c) Medium.
(d) Low.

4. What trading date dropped Long-Term below $1 billion in equity?
(a) April 15.
(b) September 5.
(c) October 10.
(d) September 21.

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

Short Answer Questions

1. After the meeting with the Fed, a market movement of what percentage could have ended Long-Term?

2. During the turmoil of 1998, investors avoided Long-Term because they were trying to avoid what?

3. What was the dollar amount of the premium Long-Term paid for its loan?

4. What award did Merton and Scholes win for economics?

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

Short Essay Questions

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

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

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

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

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

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

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

8. Who was Jon Corzine?

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

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

(see the answer keys)

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