Top Investment Banking Interview QuestionsJuly 4, 2018
Test of Personality:- The foremost key of any interview is to talk face to face with the candidate, and understand their perspectives towards the situations they’ll have to deal with, being in the company. The candidate should be prepared to answer questions like, ‘why do you want to pursue in Investment Banking?’ and the likewise.
What have you learned in the university that can be applied in the career?
The candidate without any Finance background or Economics must not think that they do not have anything to provide for a worthy answer to this question. Any degree with hard work shows the strength of efforts taken by the student which is required for every career; the extra-curricular activities must be mentioned.
Why do you want to become an investment officer?
You might say that the industry please you, or you like the rate of flux that it holds, to answer in a simple manner, but it is essential for the candidate to justify the board your reasons, and even the particular branch in finance and investment that they like.
Understanding your job, what do you think you’ll work as?
This question needs pre-research which must be done by the applicant sitting for the interview.
Also Read: Investment Banking Job Interviews
The candidate must be well read about the department and must know everything about the roles of the company they are filling in for with the market.
What opportunities are presented to financers by the financial downturn?
In the ‘bear market’ when the rates are falling, the traders might buy in a makeshift something they don’t own just to sell it, buying them back to return it when its price has fallen.
What are the current investment deals that the interviewing bank is involved in?
The candidate should do the proper reading about the tie-ups and the deals of the bank in which they are applying for the interview.
Explain the business model of the bank
Banks provide their clients with specific suggestions for finance; assist them in arranging the finance and other services like investment management and risk reduction. The main revenue resource hence comes from the fee they charge their clients for these services.
FEW QUESTIONS REGARDING THE BANK IN WHICH THE CANDIDATE HAS APPLIED FOR
- What are the shortcomings in the way our bank manages the system?
- What is the difference we have than our competitors
- Who is the CEO of the bank
- Which are the deals we have publicly announced ourselves in
FEW QUESTIONS REGARDING THE BANK THEORY WHICH MUST BE ON THE TIPS OF THE CANDIDATE
- What are the different ways to value a company, a share, and a bond?
- When is the good time to sell/buy an asset?
- What are the main issues to be associated in an M&A deal?
SOME CONCRETE QUESTIONS LIKE, THE ADVANTAGES AND DISADVANTAGES OF EQUITY FINANCE AND DEBT FINANCE TO A COMPANY RAISING FINANCE AND INVESTORS
- Raising money by selling shares gives the advantage of equity finance
- The disadvantage being in the risk if the company doesn’t prosper the money would be lost.
- The advantage for debt finance by raising money through loans.
- Debt of a reliable company is a safe investment but would lead t only a few large profits.
The candidate would be asked to define beta for a layman
- A beta of 1 means if the market moves, the stock moves with it.
- A beta< 1 means if the market moves a certain amount, the stock will move less than that
- A beta> 1 means if the market moves a certain amount, the stock will move more than that
A common definition like that of CAPM might be asked
The capital asset pricing model is a design to find the expected result of the investment, and therefore the appropriate discount rate for the company’s cash flow.
Bleak but very direct questions like, can a company have a negative book equity value?
The answer is a simple yes when the company is in the loss for a very long time.
Asking your opinions, like, if you have to pick one statement to look at, which one would it be?
The answer could be any (balance sheet, cash flow, income statement). Each has its advantages and justifications for profit.
What is the difference between commercial and investment banking?
- Commercial banks make deposits from the costumers and make consumer and commercial loans using those deposits.
- Investment banks form an intermediary between the companies and investors, does not allow deposits or take loans.
One of the standard questions, what is accretion and dilution?
- The asset growth through addition or subtraction is an accretion
- The reduction in earnings per share common stock is dilution
FEW OF THE ABBREVIATION BASED, OR DEFINITION BASED QUESTIONS
Simplest of all, yet unknown to many, what is another term for investment banking division?
What is the formula for calculating working capital?
Working capital= current assets- current liabilities
What does WACC mean?
WACC stands for Weighted Average Cost of Capital.
What is a deferred Tax Asset?
It is created when any business pays more tax to the IRS than that is reported on their income statement.
WHAT IS A FAIRNESS OPINION?
It is an independent opinion on the price offered in a merger or acquisition, providing a fixed fee.
What is CAPM?
CAPM is the Capital Asset Pricing Model.
What is SWAP?
Swap is a difference between two interest rates between two currencies. Swap can be both negative and positive.
What is DCF?
DCF is an abbreviation for Discounted Cash Flow. It evaluates the estimation of lucrativeness of an investment opportunity.
Related Article: Placement Special: Finance Interview Tips