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Answer: LTCM required their investors to invest for three years, thereby increasing funding risk.
## Explanation Let's analyze each statement: **A. True** - LTCM had massive swap positions, but they were structured with offsetting positions that theoretically minimized risk through arbitrage strategies. **B. False** - This statement is incorrect. LTCM actually had lock-up periods for investors, which REDUCED funding risk rather than increased it. The three-year lock-up period provided stable capital and prevented investors from withdrawing funds during market stress, which would have actually decreased funding risk. **C. True** - LTCM did obtain financing through repurchase agreements (repos) at very favorable terms due to their reputation and the perceived low risk of their strategies. **D. True** - Due to the enormous size of their positions in various markets, LTCM faced significant liquidity risk and could not unwind their positions without causing substantial market impact and selling at large discounts. Therefore, statement B is false because requiring investors to commit for three years actually reduced funding risk rather than increased it.
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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.
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