Interviews are always stressful. The ultimate goal is to make a good impression without being awkward. In a finance interview, your personality and knowledge are being put to the test tremendously. More importantly, when your have a finance interview, your interviewer will also test your market knowledge. Your interviewer will want to gain insight about your thought process. As a result, interviewers will ask your opinion on certain relevant industry topics. To get you started in your interview preparation process, below are ten questions that an interviewer might throw at you. If you can answer these questions, you are well on your way to becoming a well-prepared candidate.
1. What stocks do you prefer?
This may seem like a fairly simple question, but the point of this question is to determine the candidate’s level of interest in the world of finance. Additionally, this particular question can be thrown at candidates who have applied for positions in equity research, trading, and investment banking.
Hence, there should be some enthusiasm behind your response. Formulate a few thoughtful attributes to say about stocks that you perceive to be good buys and some that are not. The interviewer will appreciate your knowledge.
2. Describe insider trading… why it is illegal?
Insider trading is the buying and selling of stock based on information that is not accessible to the public. This type of trading is against the law because then the individuals with said confidential information (I-bankers, lawyers, and company executives) would utilize these private facts and make huge amounts of money unfairly. Young professionals usually receive this question so they can be assessed on their business knowledge and their ethics.
3. When should a company purchase back stock?
The organization should buy the stock back when it thinks that the stock is undervalued and suspects the company can make money by investing in itself.
A company might buy back its stock if investors are driving down the stock’s price rashly. This scenario shows the market that the company believes that the plummeting stock price is not an acceptable one. The company knows itself better than outsiders do. Therefore, by buying its own stock back, the company sends the message to the market is that the stock price should not be this extremely low (Loosvelt).
4. What is recovery value?
Recovery value’s definition is the amount an investor gets in bankruptcy liquidation from his or her investment in a certain financial instrument. The recovery rate is the related percentage. In other words, if an investor collects 40 cents on the dollar for every bond that he or she has bought in a company, the recovery value is 0.40 and the recovery rate is 40 percent.
5. What does a NINJA loan mean?
A NINJA loan can be given to a homeowner and “no income, no job, and no assets” (NINJA) are required. This loan often has little paperwork and typically, its borrowers have a credit score less than the average.
These types of loans (often seen as subprime loans) seem to highlight the upcoming deterioration of lending guidelines by banks and mortgage originators. NINJA loans and other like loans were grouped together or “packaged” and sold to investors as Collateralized Debt Obligations (CDOs). The main argument in favor of CDOs is that these mortgages are diverse through different geographies, loan sizes, and income levels. Analysts predicted that a default would occur only if there was a huge collapse in the mortgage market. Further, only an excess supply and an extensive economic slowdown, would cause a collapse – an event that did happen in late 2007 (Careers).
6. What is a good article that you read this week in The Wall Street Journal?
By reading The Wall Street Journal, you are showing that you are currently following business and economic news. Do not fall into the trap of picking an article that was a front-page headline. Rather, select a story that is tailored more towards your profession and/or industry. The interviewer will definitely take note of your take on this tricky question (Interviewing for a Financial Analyst Job? How to Answer Difficult Questions).
7. What do you think is going to happen with interest rates over the next six months?
Your interviewer wants to know if you are keeping current on market trends. In other words, this is an alternative to asking, “What has the market been doing?” Or, “what do you think the market will do in the coming 12 months?” If you have been reading The Wall Street Journal, The Economist, analyst reports, etc., this should not be a problem. If not, start reading them today.
8. How do you stay on top of the markets?
You want to demonstrate that you read the key publications (and, you should). The Wall Street Journal, the Financial Times, The Economist, and BusinessWeek should be on your reading list. Another easy way to stay updated (while on the move) is to look into popular cellphone apps. Furthermore, you should watch CNBC, Bloomberg Television, and CnnFn. Lastly, you will get bonus points for reading analysts’ research reports (especially of the firm at which you are interviewing).
9. The figures for retail sales were released today and it turned out dramatically less than economists predicting; how will this impact stock prices and the stability of the dollar?
As the news breaks it, it will negatively affect the market. However, whenever interest rates are above average, the result is different as it might cause the Federal Reserve to ease on monetary policy. This could potentially raise stock prices. In most instances, with news like this, the federal interest rate might be lowered. This would result on the dollar weakening (when being compared to major foreign currencies) and domestic companies possibly benefitting.
10. Explain what Beta is.
It is the scale of a risk proportionate to the market. While book values are typically used in mergers, acquisitions, and loan contracts the weighted average of market values are used for Betas. A beta of 1 shows a risk very relative to the market and will move along as the market does (Montoya).
Careers, Vault. “6 Finance Interview Questions That Test Your Market Knowledge.” Vault Blogs|Vault.com. Vault, 20 July 2015. Web. 14 Aug. 2015.
“Interviewing for a Financial Analyst Job? How to Answer Difficult Questions.” Robert Half. Robert Half, 06 Nov. 2014. Web. 14 Aug. 2015.
Loosvelt, Derek. “Interview Questions: Your Stock Market Knowledge.” Vault Blogs | Vault.com. Vault, 10 Mar. 2009. Web. 13 Aug. 2015.
Montoya, David. “CORPORATE FINANCE AND M&A.” Vault Finance Interviews Practice Guide. New York, NY: Vault, 2002. N. pag. Vault. Web. 14 Aug. 2015.