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Answer: The inability of leveraged LTCM to post collateral forced the close-out of positions at steep losses; but, if the positions could have remained open, LTCM could have survived.
**B.** The inability of leveraged LTCM to post collateral forced the close-out of positions at steep losses; but, if the positions could have remained open, LTCM could have survived.
Author: Manit Arora
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Q-146.4. According to Hull, which is true about the role of collateralization (collateral requirements) agreements in the Long-term Capital Management (LTCM) case study?
A
LTCM was stuck with leveraged counterparties who could not post their collateral to LTCM, which created a liquidity crunch for LTCM
B
The inability of leveraged LTCM to post collateral forced the close-out of positions at steep losses; but, if the positions could have remained open, LTCM could have survived.
C
Prior to LTCM, there was neither widespread use of collateral nor ISDA standardization; the LTCM case prompted both growth in use and development of ISDA documentation
D
Contrary to popular wisdom, Hull asserts that collateral arrangement played almost no role ("de minimis") in the LTCM case study
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