Nick's Finance Interview Questions

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This section is on Finance Interview Questions...

Largely Fixed Income.

These are some of my favourite interview questions to ask in a finance interview.

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Discount FActor = percentage at which you discount the estimated cash flows to calculate the NPV of an asset. Zero coupon bond price is priced at a discount when issued and matures at the par value.

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13. Finance Interview Questions - Bootstrap Yield Curve

How would you Bootstrap a Yield Curve ?

Bootstrap Yield Curve

Bootstrapping means calculating the Discount Factor from known previous discount factors of smaller maturities and the known rate(yield) of the equivalent maturity. E.g. for known discount factors of 3m and 6m maturities, and knowing the rate (yield) for 1y zero coupon bond, you can calculate the 1y discount factor. This process is iterative and can calculate all the discount factors for known zero coupon yields.

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12. Finance Interview Questions - What is credit risk ?

What is credit risk ?

The risk of loss of principal

The risk of loss of principal or loss of a financial reward stemming from a borrower's failure to repay a loan or otherwise meet a contractual obligation. Credit risk arises whenever a borrower is expecting to use future cash flows to pay a current debt. Investors are compensated for assuming credit risk by way of interest payments from the borrower or issuer of a debt obligation.

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11. Finance Interview Questions - More on RISK

Name 5 types of risk a Bank might have to manage.

Lquidity Risk, Strategic Risk, Reputation Risk

Liquidity Risk - asset liquidity risk - ability to raise the necessary cash to roll over its debt or to meet the cash margins etc.

Strategic Risk - significant bank investment in a venture, which results in write-off and banks reputation among investors will be damaged.

There are mainly three types

There are mainly three types of Risks:
1) Credit Risk
2) Operational Risk
3) Market Risk

others are

liquidity risk, interest rate ,foreign exchange risk, country risk, insolvency risk,
Off balance-sheet risk , technology risk, diversifiable and non-diversifiable risk

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10. Finance Interview Questions - What is RISK ?

What is RISK ?

... this is a great question, and worth asking to CEOs of major investment banks cos they clearly don't understand it. I guarantee they get it wrong.

risk means uncertainty about

risk means uncertainty about future events affecting our current positions