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

2. Why was Long-Term unable to get out of the situation with Russia?
(a) Their investments were not liquid.
(b) Russia would not let them.
(c) They did not want to.
(d) They had too much money.

3. How many banks stepped forward to help bail out Long-Term?
(a) 20.
(b) 30.
(c) 16.
(d) 2.

4. What did Scholes and Merton think of some of the private trades Long-Term made in 1998?
(a) They did not support them.
(b) They were excited.
(c) They were impressed.
(d) They supported them.

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

Short Answer Questions

1. In the mid-1990's, what was the ratio of leverage on Wall Street?

2. Once the financial market in Russia collapsed, what did people stop trading?

3. What determines the swap rate in a country?

4. If the Long-Term fund failed, what would counter parties have to do?

5. In 1998, Long-Term expected prices to do what?

Short Essay Questions

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

2. When Meriwether reached out to his clients following the Russian crisis, how did he explain the effect of the situation in Russia?

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

4. Following the financial crisis in Russia, what did the partners do to begin raising money?

5. Who was Jon Corzine?

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

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

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

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

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

(see the answer keys)

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