The 30 essential questions you must know to pass a banking interview

Q1- Give me a time when you had to work long hours , What did you like and dislike?

Suggested Answer: I recently experienced a situation where I had to work long hours as part of an investment banking project. This project was very demanding and I had to work around the clock to meet the deadlines.

The thing I liked about working long hours was that I was able to learn a lot about the investment banking industry and the process of financial analysis. I also enjoyed the feeling of accomplishment when I achieved the goals I had set for myself.

On the other hand, the thing I disliked about working long hours was the impact it had on my social life. Many times I had to miss out on important family functions or social events due to the demands of the project. Additionally, the lack of sleep caused by the long hours was a major factor in taking a toll on my mental health.

Overall, while working long hours can be demanding, it was a great experience for me as I gained useful skills and insights into the world of investment banking.

Q2- What do investment bankers actually do?

Suggested Answer: Investment bankers are professionals who help companies and governments raise money by issuing and selling securities. They also advise clients on mergers, acquisitions, and other financial transactions. Investment bankers typically work for investment banking firms, but some also work for commercial banks or other financial institutions. They often work long hours and the job can be very stressful. They typically have a background in finance, economics or business.

Q3- What do associates do in investment banks?

Suggested Answer: Associates in investment banks are typically entry-level or mid-level professionals who work under the guidance of more senior investment bankers. They are responsible for supporting the senior bankers in various aspects of the deal-making process, such as conducting financial analysis, creating presentations, and helping to prepare and execute transactions. Associates also help to identify potential clients and business opportunities. They are expected to be strong in financial modeling and excel in excel. They also need to be able to communicate effectively and work well in a team.

Q4- What does a good credit rating say about a firm?

Suggested Answer: A good credit rating for a firm indicates that the company is financially stable and likely to meet its financial obligations in a timely manner. Credit ratings are often assigned by credit rating agencies and are based on an analysis of the company's financial health, including its revenue, assets, liabilities, and management team. A higher credit rating generally indicates a lower risk of default, and as a result, the company may be able to borrow money at lower interest rates.

Q5- Which stock market see do you see on Netflix and what you have learn from there?

Suggested Answer: The show 'Billions' showcases the inner workings of the stock market and the strategies used by different players. It also provides insights into investment banking and how Wall Street works.

Other shows like 'Startup' and 'Wolf of Wall Street' provide a glimpse into the life of a successful stock market trader and the challenges they face. By studying these shows, you can gain a better understanding of everything from stock market analysis to investment banking and more.

Q6- Tell me how you will construct a risk neutral cross-country trade on the 2 year – 10-year interest rate spread in England and the US?

Suggested Answer: To construct a risk neutral cross-country trade on the 2 year - 10 year interest rate spread in England and the US, one could take the following steps:

Obtain the current 2 year and 10 year government bond yields for both England and the US.
Calculate the interest rate spread by subtracting the 2 year yield from the 10 year yield for each country.
Use a pricing model, such as the Black-Scholes model, to calculate the theoretical value of a spread option that allows the holder to profit from a change in the spread between the two countries. This can be done by inputting the current spread, the time to expiration, and the volatility of the spread.
Identify a counterparty willing to take the opposite side of the trade and agree on the terms of the option, such as the strike price and expiration date.
Execute the trade by entering into a contract with the counterparty, where the holder of the option has the right but not the obligation to buy or sell the spread at the strike price at expiration.
Monitor the trade and close out the position before expiration if desired.

Q7- Explain to me how you can hedge out the correlation risk in my portfolio as low as possible?

Suggested Answer: Hedging correlation risk in a portfolio can be done in several ways. One common method is through diversification, by investing in a variety of assets that have low or negative correlation with one another. This can help to reduce the overall risk of the portfolio by spreading it across multiple assets that are not likely to move in the same direction at the same time.

Another method is using derivative instruments such as options and futures to hedge against specific risks. For example, an investor can purchase put options on a stock index to protect against a market downturn.

Additionally, using correlation analysis to identify and monitor the correlation between different assets in a portfolio, and adjusting the portfolio accordingly can also be useful.

It's worth noting that it's impossible to completely eliminate correlation risk, but through the use of these methods, it's possible to minimize the correlation risk as much as possible.

Q8- Suppose you have a strategy that is producing a Sharpe Ratio of 2 If the distribution of returns is stable how long would it be before we can be 95% confident that the distribution has a positive Sharpe Ratio?

Suggested Answer: The Sharpe Ratio is a measure of the risk-adjusted return of an investment, calculated as the average return minus the risk-free rate divided by the standard deviation of returns. A positive Sharpe Ratio indicates that the investment has provided a higher return than the risk-free rate, adjusted for its volatility.

To determine how long it would take to be 95% confident that the distribution has a positive Sharpe Ratio, one would need to perform a statistical test. The specific test used would depend on the assumptions about the distribution of returns, such as whether it is normally distributed or not.

In general, the length of time required to be 95% confident in the Sharpe Ratio will depend on the number of observations, the magnitude of the Sharpe Ratio, and the stability of the returns distribution. The more observations you have, the higher the Sharpe Ratio, and the more stable the distribution, the more quickly you can be confident in the positive Sharpe Ratio.

It's important to note that past performance is not a guarantee of future results and that there is always a degree of uncertainty associated with any investment strategy. In addition, there are other factors that can impact the returns of an investment, such as market conditions, changes in economic policy, and more. As such, it's important to monitor the performance of an investment strategy over time and to regularly reassess its risk-return profile.

Q9- If I gave you $1 million right now, how would you invest it and what is your exposure?

Suggested Answer: Investing can be a tricky and complex endeavor with numerous variables to consider. When it comes to investing $1 million, I would recommend taking a long-term approach and diversifying your investments. To maximize returns, I would suggest balancing a combination of high-risk and low-risk investments, such as stocks, bonds, mutual funds, real estate, and commodities. My exposure would depend on the individual investments I make and the amount of money I decide to allocate to each asset class

Q10- Tell me how your trading strategy works at the desk?

Suggested Answer: A trading strategy is a plan for buying and selling assets based on market conditions, with the goal of making a profit. Some common approaches include:

Trend Following: Involves identifying the direction of the market and trading in the same direction.
Mean Reversion: Involves betting that prices will revert back to their average after a period of deviation.
Momentum Trading: Involves buying assets that have had a strong recent performance, with the belief that they will continue to perform well.
Value Investing: Involves buying undervalued assets and holding them for the long-term.
Algorithmic Trading: Involves using computer programs to execute trades based on mathematical models and market data.

These are just a few examples, and the specific approach used can vary greatly depending on the trader, the assets being traded, and the market conditions. It's also important to note that past performance is not a guarantee of future results, and all trading involves risk.

Q11- Explain to me how Elliott Wave trading strategy works?

Suggested Answer: The Elliott Wave trading strategy is a technical analysis approach that attempts to predict future price movements in financial markets, such as stocks, currencies, or commodities. It is based on the theory proposed by Ralph Nelson Elliott in the 1930s, which suggests that market prices move in predictable patterns or waves. According to the Elliott Wave theory, market price movements are a result of the collective psychology of market participants. It assumes that investor sentiment swings between optimism and pessimism in repetitive patterns, creating waves. These waves are categorized into two main types: impulse waves and corrective waves.

Impulse Waves: Impulse waves move in the direction of the overall trend. They consist of five smaller waves labeled as 1, 2, 3, 4, and 5. Waves 1, 3, and 5 represent the upward or bullish movement, while waves 2 and 4 are smaller downward or corrective movements.
Corrective Waves: Corrective waves move against the trend. They consist of three smaller waves labeled as A, B, and C. Wave A represents the first downward movement, followed by an upward correction in wave B, and then another downward movement in wave C.

Traders who follow the Elliott Wave strategy analyze price charts to identify these wave patterns and try to predict the future price direction. They use various technical tools, such as trendlines, Fibonacci retracements, and oscillators, to aid in their analysis. The strategy involves several key principles:

Wave Counting: Traders aim to identify and label each wave to determine its position within the larger wave structure. This helps in understanding the current market phase and forecasting potential future moves.
Fibonacci Ratios: Elliott Wave theory suggests that price retracements and extensions often adhere to certain Fibonacci ratios, such as 38.2%, 50%, and 61.8%. Traders use these ratios to estimate potential price levels for reversals or extensions.
Wave Relationships: The theory emphasizes the concept of wave relationships, such as wave equality, where certain waves tend to exhibit similar price or time proportions. Traders look for these relationships to gain insights into possible price targets.
Wave Validation: Traders seek confirmation of their wave analysis through the use of additional technical indicators, volume analysis, or other chart patterns. This helps increase the probability of accurate wave identification.

It's important to note that the Elliott Wave theory is subjective and open to interpretation. Different analysts may identify and label waves differently, leading to varying predictions. Therefore, it's crucial for traders to combine Elliott Wave analysis with other technical and fundamental indicators to make informed trading decisions. Overall, the Elliott Wave trading strategy aims to identify and anticipate potential market turning points by analyzing repetitive wave patterns in price charts. However, like any trading strategy, it is not foolproof and carries risks. Traders should thoroughly study and practice before incorporating it into their trading approach.

Q12- A client is concerned about the effect of a future event in the portfolio. What should you do?

Suggested Answer: In this situation, it is best to provide an in-depth analysis of the potential impacts of the event on the portfolio. This may include conducting research on the event, the industry, and the market, as well as creating a financial model to analyze the event's impacts. Additionally, it is important to understand how the event may affect the portfolio and provide recommendations on how to mitigate any potential risks. Finally, it is important to explain the analysis and recommendations to the client in a clear and concise manner.

Q13- Tell me how many buildings there are in New York ?

Suggested Answer: It's not possible to determine the exact number of buildings in New York, as the number is constantly changing due to new constructions and demolitions. However, it's estimated that there are several million buildings in the city. New York is one of the largest and most densely populated cities in the world, with a diverse array of residential, commercial, and public buildings, including skyscrapers, brownstones, and townhouses. The city's skyline is widely recognized as one of the most iconic in the world, and its buildings are a testament to its rich history and continued growth and development.

Q14- Describe yourself in three words?

Suggested Answer:

Analytical
Responsible
Strategic

Q15- What is your biggest flaw during work?

Suggested Answer: My biggest flaw during work is that I focus too much on the smallest details which can cause me to overlook the bigger picture. While I understand that it is important to pay attention to detail and make sure everything is perfect, sometimes I find myself getting stuck on small tasks and forgetting to step back and look at the bigger picture. I am currently working on improving my time management skills and creating strategies to help me focus on the bigger picture while still ensuring the accuracy of the smaller details.

Q16- Tell me what are the risks associated with owning a bond for long term and short term?

Suggested Answer: Bonds are debt securities that are issued by companies and governments to raise capital. They provide a fixed stream of income in the form of interest payments and can be an attractive investment option for both short-term and long-term investors. However, there are also associated risks that investors need to be aware of:

Short-term Risks:

Interest rate risk: If interest rates rise, the price of existing bonds may fall, as new bonds with higher rates become more attractive. This can result in short-term losses for bondholders.
Credit risk: The risk that the issuer of the bond will default on its interest payments or repay the bond's principal when it matures.
Liquidity risk: The risk that bondholders may not be able to sell their bonds quickly or at a favorable price in the market.

Long-term Risks:

Inflation risk: The risk that the returns from a bond will not keep pace with the rate of inflation over the long-term.
Credit risk: As with short-term investments, the risk of default by the issuer is a concern for long-term bondholders.
Duration risk: The risk that changes in interest rates will have a larger impact on the value of long-term bonds compared to short-term bonds.

Q17- Explain to me how you will hedge interest rate risk on a long term bond?

Suggested Answer: Interest rate risk is the risk that changes in interest rates will impact the value of a bond. Hedging interest rate risk on a long-term bond can be achieved through a variety of strategies. Some common methods include:

Interest Rate Swaps: This involves exchanging the fixed interest payments from a bond for a floating rate payment, which is tied to a benchmark interest rate. This can help to reduce interest rate risk, as changes in the benchmark rate will have a corresponding impact on the interest payments received.
Bond Portfolio Diversification: This involves holding a mix of bonds with different maturities and credit ratings. This can help to reduce the impact of changes in interest rates on a single bond, as different bonds may be impacted differently.
Bond Laddering: This involves holding bonds with different maturities, so that a portion of the portfolio matures and can be reinvested periodically. This can help to reduce interest rate risk, as reinvestment occurs at the prevailing interest rates.
Treasury Inflation-Protected Securities (TIPS): These are bonds issued by the U.S. government that provide a fixed rate of return, adjusted for inflation. This can help to reduce the impact of inflation and interest rate risk, as the returns from TIPS are tied to the rate of inflation.

It's important to note that these are just a few examples and that the specific approach used will depend on the investor's goals, risk tolerance, and other factors. It's always a good idea to consult with a financial advisor to determine the most appropriate strategy for your individual circumstances.

Q18- Explain to me how liquidity affects the bid-offer spread on a bond?

Suggested Answer: The bid-offer spread is the difference between the highest price that a buyer is willing to pay for a bond (the "bid") and the lowest price that a seller is willing to accept (the "offer"). The bid-offer spread is a measure of the cost of trading a bond and is an important factor for investors to consider when buying or selling bonds.

Liquidity is a measure of how easily a bond can be bought or sold in the market. A bond with high liquidity will have a narrow bid-offer spread, as there are many buyers and sellers in the market and it is easy to find a buyer or seller for the bond at close to the quoted price. On the other hand, a bond with low liquidity will have a wider bid-offer spread, as there are fewer buyers and sellers in the market and it may be more difficult to find a buyer or seller for the bond at close to the quoted price.

The relationship between liquidity and the bid-offer spread can be understood as follows: When a bond is highly liquid, there is a large number of buyers and sellers in the market, and the competition among these market participants helps to keep the spread between the bid and offer prices narrow. When a bond is less liquid, there are fewer market participants, and the competition is less intense, which leads to a wider spread between the bid and offer prices.

In general, the bid-offer spread can be an indicator of the liquidity of a bond, with a narrower spread indicating higher liquidity and a wider spread indicating lower liquidity. As a result, investors should consider the liquidity of a bond when making investment decisions, as bonds with lower liquidity may be more difficult and more expensive to trade.

Q19- Tell me why you want to join Mitsubishi?

Suggested Answer: Joining Mitsubishi would be a valuable opportunity for me to leverage my expertise in finance and investment banking. During my previous experiences, I have developed strong skills in financial analysis, portfolio management, and risk assessment. I am confident that I can bring these skills to Mitsubishi and contribute to the company’s success.

Moreover, I am highly motivated to work with a company that has such a prestigious reputation and a long history of success. I believe that a successful career at Mitsubishi would be very rewarding and I am committed to being an asset to the company. I am also eager to grow and gain more experience in this field by working on challenging projects and leveraging Mitsubishi’s resources to help me reach my goals.

Q20- Tell me what is the square root of 135 without using pen, paper and any other electronic device ?

Suggested Answer: The square root of 135 is calculate using the long division method and rounded off to the nearest hundredth as √135 = 11.6.

Q21- Tell me the meaning of the CDS index?

Suggested Answer: A CDS (Credit Default Swap) index is a financial instrument used to hedge against or speculate on the credit risk of a portfolio of bonds or other debt instruments. A CDS index is a composite of the prices of several individual CDS contracts that represent a basket or index of credit entities, such as a group of companies or a particular sector.

The CDS index acts as a measure of the overall credit risk of the entities included in the index, and changes in the value of the index reflect changes in the perceived credit risk of the underlying entities. Investors can use CDS indices to manage or transfer credit risk, as well as to gain exposure to the credit risk of a particular sector or group of entities.

For example, a investor who is concerned about the credit risk of a particular sector could purchase a CDS index that tracks the credit risk of that sector. If the credit risk of the sector increases, the value of the CDS index is likely to rise, and the investor would realize a profit. On the other hand, if the credit risk of the sector decreases, the value of the CDS index is likely to fall, and the investor would realize a loss.

In summary, a CDS index is a financial instrument that provides a composite measure of credit risk, and allows investors to manage or transfer credit risk, as well as to gain exposure to the credit risk of a particular sector or group of entities.

Q22- What would you invest in if the holding period is 1year, 3 years, and 10 years?

Investing for 1 Year

Suggested Answer: For an investment with a holding period of a single year, it is important to look for investments that have the potential for quick returns, as well as a relatively low risk profile. Investing in stocks, mutual funds, ETFs, and index funds are all popular options for one-year investments, as they have the potential for good returns without taking on too much risk. Investing in individual stocks carries more risk, but can also provide higher returns.

It is important to do research and analyze the market before investing, as well as understanding the different types of investments available. It is also important to consider taxes, fees, and other costs when investing, as these can erode returns significantly.

Investing for 3 Years

For an investment with a holding period of three years, investors should look for opportunities with higher potential returns. Investing in stocks, mutual funds, ETFs, index funds, and bonds are all potential options. Investing in individual stocks carries more risk, but also has the potential to generate higher returns.

Investing for 10 Years

For an investment with a holding period of 10 years, investors should look for investments with low risk and long-term returns. Investing in stocks, mutual funds, ETFs, index funds, and bonds are all potential options. Investing in individual stocks carries more risk, but also has the potential to provide higher returns.

It is important to understand the different types of investments available and research the market before investing. Other considerations include taxes, fees, and other costs. Diversifying investments is a key strategy for reducing risk and maximizing returns. Investing for the long-term requires patience and discipline, as well as an understanding of the different types of investments available.

Q23- What is most important for you Money, honor, or knowledge?

Suggested Answer: All three of these are important in their own ways, and are intertwined in many different ways. Money is necessary for basic needs, such as food, shelter, and healthcare. Honor gives us a sense of pride and recognition, which can be extremely powerful for many people. Knowledge is invaluable for a wide range of activities, from creative pursuits to learning about the world around us. It is difficult to pick one above the others, as each provides its own unique benefits. Ultimately, it is important to strive for balance in all three areas, as each brings something unique and valuable to our lives.

Q24- Why should we give you the job, what will you do for this organization ?

Suggested Answer: Given my background in investment banking, I am well-positioned to help this organization succeed. I have a track record of success in providing sound financial advice, conducting market research, and developing strategies for profitable growth. My experience in managing portfolios and analyzing financial data will be invaluable in helping the organization to make informed and profitable decisions. Additionally, I have a strong background in developing relationships with clients, providing customer service, and crafting effective financial presentations. In short, I have the skills necessary to help the organization maximize its potential and achieve its goals.

Q25- Why do you want to join Morgan Stanley ?

Suggested Answer: I believe that Morgan Stanley is an excellent choice for me to pursue a career in investment banking. As one of the world's leading financial services companies, Morgan Stanley offers unparalleled opportunities for professional growth and development. I value their commitment to providing clients with the best advice possible, and I am confident that I can bring my unique skills and knowledge to help their team achieve success. Furthermore, I am drawn to the dynamism of the investment banking industry and am excited to be a part of it. I am eager to expand upon my current financial knowledge and apply it to the investment banking sector. I am confident that Morgan Stanley will be the perfect place to do so.

Q26- Suppose there is some political risk happening in this country. What will happen in the stock and derivatives market ?

Suggested Answer: Political risk refers to the uncertainty and potential financial loss associated with a change in the political environment of a country. This can include changes in government policies, elections, political unrest, and other events that can impact the stability and predictability of a country's business and investment environment.

The impact of political risk on the stock and derivatives market can vary depending on the severity and type of political event, as well as the country's specific economic and financial circumstances. Generally, political risk can lead to increased volatility and uncertainty in the financial markets, and can cause stock prices to decline and investors to become more risk-averse.

In the stock market, political risk can lead to increased selling pressure and a decline in stock prices, particularly for companies with significant exposure to the affected country. This can lead to a decline in investor confidence and a reduction in the overall liquidity of the stock market.

In the derivatives market, political risk can lead to increased demand for hedging instruments, such as options and futures, as investors look to protect themselves against potential losses in the stock market. This can lead to increased volatility and trading activity in the derivatives market, as well as increased demand for safe-haven assets, such as government bonds and gold.

In summary, political risk can have a significant impact on the stock and derivatives market, causing increased volatility and uncertainty, as well as a decline in stock prices and investor confidence. The specific impact of political risk will depend on the nature and severity of the event, as well as the country's specific economic and financial circumstances.

Q27- Walk through a discounted cash flow (DCF) analysis including WACC?

Suggested Answer: A discounted cash flow (DCF) analysis is a method used to estimate the intrinsic value of an investment based on its expected future cash flows. The DCF model takes into account the time value of money, which states that a dollar received in the future is worth less than a dollar received today.

Here is a step-by-step walk-through of a DCF analysis, including WACC (Weighted Average Cost of Capital):

Forecast cash flows: The first step is to forecast the future cash flows of the investment. This typically requires making assumptions about future sales, operating expenses, capital expenditures, and other relevant factors.
Determine discount rate: The discount rate, also known as the cost of capital, represents the required rate of return that an investor would expect to receive from an investment. WACC, which is the weighted average cost of capital, is a commonly used discount rate in a DCF analysis. It is calculated by taking into account the costs of all sources of financing, including equity, debt, and any other sources of capital.
Discount cash flows: Once the future cash flows have been forecasted and the discount rate has been determined, the next step is to discount each cash flow back to its present value. This is done by dividing each cash flow by (1 + discount rate) raised to the power of the number of years into the future that the cash flow occurs.
Calculate present value of cash flows: The present value of each cash flow is summed up to determine the present value of all future cash flows.
Compare present value to the cost of the investment: Finally, the present value of all future cash flows is compared to the cost of the investment. If the present value of the cash flows is greater than the cost of the investment, the investment is considered to be undervalued and may be a good investment opportunity. On the other hand, if the present value of the cash flows is less than the cost of the investment, the investment is considered to be overvalued and may not be a good investment opportunity.

In summary, a DCF analysis is a method used to estimate the intrinsic value of an investment based on its expected future cash flows. The discount rate, which is the cost of capital, is used to adjust the future cash flows for the time value of money, and the WACC (weighted average cost of capital) is a commonly used discount rate in a DCF analysis. The present value of all future cash flows is compared to the cost of the investment to determine whether the investment is undervalued or overvalued.

Q28- Why should we hire you?

Suggested Answer: As an experienced, highly motivated individual with a strong understanding of the investment banking sector, I believe I can bring a unique perspective and valuable insight to your team.

My experience in quantitative analysis, financial modeling, and risk management has allowed me to develop a deep understanding of the complexities of the industry, enabling me to see potential in areas that others may miss. Additionally, I have the communication, interpersonal, and organizational skills essential to direct my efforts in a strategic and efficient manner.

I am also an adept problem solver and have a knack for finding creative solutions to difficult problems. My drive and enthusiasm will enable me to proactively seek out and take advantage of opportunities, while my strong work ethic will ensure that I always deliver results.

Overall, I have the talent and skills to be an invaluable asset to your team, and I am confident that I will be able to make a positive contribution to your organization.