Sales & Trading Interview Practice Test

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• In the creditor priority order, what is a notable feature of preferred stock?
• Which statement best describes secured debt?
• How does the Black-Scholes model handle dividends?
• A company will normally prefer to issue debt because it is cheaper and interest payments are tax deductible; what is a key condition for debt issuance?
• One article discussed the middle class shrinking and stagnation in growth. What was the reported trend?
• What is a derivative?
• What is a Credit Support Annex and how does collateralization influence derivative pricing and risk?
• What is Value at Risk (VaR) and what are its main limitations?
• What is Bank of America's relative strength ranking as noted?
• In stress testing, which outputs are typically evaluated?
• What is the tax advantage of debt financing often referred to as?
• What defines the spot exchange rate?
• Market microstructure factors that influence trading costs and execution quality include bid-ask spreads, depth, liquidity, and latency.
• Which statement best describes investment grade bonds compared to junk bonds?
• What price target is given for Bank of America?
• Which security typically has the highest priority in liquidation among the listed debt and equity instruments?
• Which statement best describes vega and its relation to implied volatility?
• Which statement best describes bond ratings?
• What is the relationship between delta and position sizing for a long call option in a hedging strategy?
• What is the unemployment rate mentioned?
• Yield to maturity is defined as:
• GDP is calculated as the sum of which components?
• What is 'alpha' in portfolio management?
• What is trading?
• Which of the following is listed as a factor when analyzing an equity?
• What is 'beta' in equity risk and how is it used in hedging or portfolio construction?
• What is 'cross-asset hedging' and provide an example?
• The coupon payment on a bond is best described as
• If U.S. interest rates rise, what typically happens to the USD/CAD exchange rate?
• Which statement best describes customer flow versus proprietary trading on a sell-side desk?
• No-arbitrage condition in FX forward pricing implies which relation?
• Stock repurchases can affect earnings per share by
• What is Bank of America's annual EPS as stated?
• In liquidation, which has the highest priority?
• How does short selling typically work?
• In FX trading, base currency refers to the first currency in a pair and quote currency to the second. For the pair EURUSD, what does the quoted price represent?
• What is the difference between initial margin and maintenance margin in futures trading?
• What is the 10-year Treasury yield cited?
• Define delta and explain how it relates to the sensitivity of an option's price to the underlying asset.
• If inflation rates rise, what will happen to the Canadian dollar according to the material?
• Which statement best describes a floating rate loan?
• Describe 'theta' in options trading and its practical implication for long option positions.
• What is price impact and how do traders estimate it for large orders?
• What factors determine the funding cost referenced in collateral-based pricing?
• What is the expected trend for the US dollar and why?
• Explain 'gamma' and describe how it influences delta hedging as the underlying moves.
• Which of the following is NOT listed as a factor when analyzing an equity?
• A stock with a beta of 1 is expected to have returns that are
• Which financial instruments are listed as standard categories?
• Mezzanine debt often includes a preemptive right. What does this preemptive right allow?
• Which markets are listed as areas of interest?
• In yield curve construction, what is the zero-coupon yield curve?
• For a short option position, which risk characteristics are typical?
• Under covered interest rate parity, the FX forward price F for a pair is given by which relation?
• What is 'short selling' and what regulatory or practical constraints affect it?
• What is 'slippage' and what factors influence it during high-volatility periods?
• Which bank is identified as a leading investment bank in the trading idea?
• In the creditor order, mezzanine debt is described as convertible debt.
• In the context of investments, which factor is often used to judge if a stock's performance is good relative to the market?
• Which company is suggested for a potential short in the material?
• What price target does the short pitch propose for Shopify after consolidation?
• In a CDS contract, what constitutes a 'credit event'?
• What is cross-hedging and when would you use it?
• What is the purpose of the dollar index as described?
• Monetary policy can influence the money supply. Which of the following actions corresponds to this mechanism in the material?
• When a trader expects a large, illiquid order, which approach best estimates price impact?
• What is the primary purpose of a stock buyback?
• What is the approximate stock price for Bank of America mentioned in the idea?
• Which set of factors affects foreign exchange rates?
• Which services are offered by the institution?
• What does the bid/ask spread represent?
• In credit trading, as described in the material, selling credit is essentially selling credit as short-term lending to the purchaser. Which option best describes this concept?
• When pricing a simple fixed leg of an interest rate swap with a notional and yield curve, which describes the present value?
• What is the purpose of bootstrapping in yield curve construction?
• The face value of a bond refers to
• Which action is a monetary policy tool involving the central bank's assets?
• What happens when a borrower defaults on a secured loan?
• Which factor most directly affects the likelihood that a limit order will fill?
• Which statement about delta and hedging is most accurate?
• In current market conditions, which factor largely influences the decision to issue debt or equity?
• Which corporate action directly signals the possibility of higher shareholder cash returns through regular payments?
• What is described as the current state of interest rates?
• Money left on the table in an IPO refers to which situation?
• Which asset classes does the speaker prefer to trade, and why?
• Which action can directly increase the value per share by reducing the number of shares outstanding?
• Among the listed securities, which generally carries the most residual risk for investors?
• How does inflation typically affect bond prices?
• What does market depth indicate and how does it affect the execution of large trades?
• What did the Bank of Canada do to interest rates as described?
• Which description best defines High Yield Bonds?
• Describe 'theta' in options trading and its practical implication for long option positions.
• The yield curve graphs the relationship between interest rates and maturities of bonds of the same credit quality. This implies which of the following?
• Swaps are described as derivative contracts where one party exchanges cash flows or value of one asset for another. This best illustrates which concept?
• Describe the difference between 'market orders', 'limit orders', and 'stop orders' and when each is used.
• Which security provides ownership rights in a company?
• Which term describes a capital structure position that sits between debt and equity?
• Explain put-call parity for European options on non-dividend paying stocks.
• What YoY change is claimed for Shopify's quarterly earnings per share in the short pitch?
• What is 'vega' and why does an option's price depend on volatility?
• What is a credit default swap (CDS) and what are its basic payoff mechanics?
• What is the difference between cash flow matching and immunization in bond portfolio management?
• Which instruments are explicitly given as derivatives in the material?
• Which description best defines mezzanine debt?
• What are the limitations of the Black-Scholes model for option pricing?
• Which statement best describes gamma in options risk?
• How do banks estimate risk-weighted assets and why is it important for capital adequacy?
• Equity derivatives are contracts that derive value from the performance of an underlying entity. Which are examples?
• If a stock has a beta of 1 and the market rose 30% over the last 12 months, what does that imply about the stock's performance?
• How would you structure a hedged equity curve using options to create a collar?
• Describe the difference between 'alpha' and 'beta' in portfolio management.
• Who is senior in bankruptcy: bondholder or stockholder?
• Credit trading is described as advantageous when a business does not have many options. Which scenario best matches this idea?
• Lowering interest rates generally has what effect on inflation?
• What best describes a repo transaction?
• Which of the following is a component of GDP?
• A company should buy back its own stock when it believes the stock is what?
• A basis point equals what percentage point?
• Which statement about zero-coupon bonds is true?
• What is a basis swap and what is basis risk?
• Insider trading is defined as?
• According to the material, which aspect drew the author to BNP Paribas?
• In futures trading, what happens during a margin call?
• Which sequence best describes a typical 'walk me through a trade' from idea to execution?
• In a rising rate environment, which portfolio adjustment is typically prudent?
• What does forex refer to in financial markets?
• Explain the role of a structurer on a sell-side desk.
• What is no-arbitrage principle in pricing derivatives?
• What is the inflation outlook and deflation risk described?
• What is sales in investment banking?
• How does a trader implement delta hedging for a long call option in discrete time?
• Which items are listed as Federal Reserve policy tools?
• In currency terminology, when does depreciation occur vs devaluation?
• In bond investing, what is liquidity premium?
• What is the LIBOR rate cited in the market update?
• Which action is a direct tool of monetary policy to influence borrowing costs?
• What is the difference between the primary and secondary markets?
• According to the material, a weaker dollar would affect the government's debt burden by doing what?
• Which factor best describes order book depth in estimating price impact?
• Why is Level 2 market data important for traders?
• What is arbitrage and give a simple example on fixed income?
• What happens to bond prices when interest rates increase?
• Which three objectives are identified as the Federal Reserve's main objectives?
• What is the difference between OIS discounting and Libor discounting, and why did markets shift?
• How do you calculate yield to maturity for a simple bond from its price?
• Which market event was mentioned as indicating volatility or concern in the markets?
• What is implied volatility and how does it relate to option price?
• In derivatives, a swap is a contract where one party exchanges the cash flows or value of one asset for another. What do the parties exchange?
• What currency pair trend is suggested in the trade idea?
• What is basis risk in hedging with futures, and how can it be minimized?
• In the growth-potential comparison, which stock is more likely to have higher growth potential?
• Explain risk-neutral valuation concept used in derivative pricing.
• Explain 'convexity' and why it matters for bond price sensitivity.
• What is volatility skew or smile and what do they imply for option pricing?
• PIK stands for Paid In Kind. This term describes bonds that are paid with:
• If a position has high gamma, what does that imply for hedging?
• What is an option-adjusted spread (OAS) and how is it used when comparing bonds?
• Define Z-spread and how it differs from other spreads (1x12, option-adjusted spread).
• An accretive merger is expected to do what to earnings per share?
• How does collateralization influence derivative pricing beyond reducing credit exposure?
• DV01 is commonly used to hedge which type of risk?
• What is a 'stress scenario' in stress testing for trading desks?
• What factor drove market development in the past six months?
• How does CVaR complement VaR in risk management?
• What is the greatest risk the speaker has taken?
• A statement about duration and bond price sensitivity.
• BNP Paribas is best described as which of the following?
• LIBOR is best described as what?
• Which instrument is designed to provide fixed dividends and a higher claim on assets than common stock?
• If a company reports higher quarterly earnings but its stock price falls, which is a plausible explanation?
• If you believe interest rates will fall, which bond type should you buy for potential greater price appreciation?
• According to the asset allocation, which combination constitutes the 60% invested in markets?
• Which statement about price discovery is true?
• In the $10 million example, what percentage is allocated to risk-free investments?
• What is the difference between 'duration' and 'modified duration'?
• BNP Paribas originated in which location and year?
• In a plain-vanilla interest rate swap, which statements are true about the fixed leg and floating leg and what DV01 measures?
• If unemployment is low, what typically happens to inflation and interest rates?
• What does DV01 measure in fixed income risk management, and how is it used?
• Who typically facilitates the borrowing of shares for short selling?
• If a fund posted a 50% return last year, what is the appropriate way to evaluate it?
• What is Bank of America's ROA mentioned?
• Which item is specifically cited as a factor in equity analysis that reflects overall market conditions?
• When pricing a fixed leg of a swap using the yield curve, which statement is correct?
• Which factor is NOT listed as affecting foreign exchange rates?
• Which statement best describes a stock buyback?
• What is the yield on the current 10 year treasury note?
• Why might an investor prefer preferred stock over common stock?
• Why are junk bonds typically issued with higher interest rates?