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Answer: LTCM required their investors to invest for three years, thereby increasing funding risk.
## Explanation Statement B is false because LTCM actually had lock-up periods for their investors, which helped reduce funding risk rather than increase it. Investors were required to keep their money invested for extended periods, providing LTCM with stable capital. **Key facts about LTCM's troubles:** - **A is true**: LTCM had massive swap positions but believed their risk was minimized through offsetting positions - **C is true**: LTCM obtained favorable financing terms through repurchase agreements - **D is true**: LTCM's positions were so large that liquidation would have required selling at significant discounts - **B is false**: The three-year lock-up period actually helped reduce funding risk by providing stable capital LTCM's collapse was primarily due to: - Extreme leverage (25:1 to 30:1) - Concentrated positions in convergence trades - Market illiquidity during the 1998 Russian financial crisis - Inability to meet margin calls when their positions moved against them
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Long-Term Capital Management (LTCM) experienced financial difficulty in the late 1990s. Which of the following statements is false regarding their troubles?
A
The amount of their positions in swaps was very large, but due to offsetting positions, the amount of their risk was in theory very small.
B
LTCM required their investors to invest for three years, thereby increasing funding risk.
C
LTCM obtained financing through repurchase agreements at very favorable terms.
D
Due to the size of their positions, LTCM could not liquidate their assets without selling at large discounts.