Which 1998 Russian financial crisis event caused the global hedge fund Long-Term Capital Management to be rescued?
Answer
Russia’s debt default
Russia’s debt default caused the global hedge fund Long-Term Capital Management to be rescued in 1998.
On August 17, 1998, Russia devalued the ruble, declared a moratorium on some foreign debt payments, and restructured parts of its domestic debt. The announcement shocked financial markets and widened risk premiums on many securities.
Long-Term Capital Management, or LTCM, had used highly leveraged trading strategies based on expected price relationships. The Russian default intensified a worldwide flight from risky assets and caused losses that threatened the fund’s solvency.
The Federal Reserve Bank of New York organized a private-sector rescue in September 1998. A consortium of major financial institutions provided capital and took control of the fund, avoiding an immediate disorderly liquidation.