Finance Interview Questions

Question 1

What factors influence foreign currency exchange rates?

Answer 1

Key factors include:
(i) fiscal and monetary policy
(ii) the balance of trade levels
(iii) inflation levels
(iv) economic growth.

• For example, if one country is increasing its money supply significantly more than another country, its currency will become less valuable
• A country with higher interest rates will also tend to have a more valuable currency because higher interest rates create more investor demand for that currency.

Question 2

What is the yield to maturity (YTM) of a bond, and how do you use it?

Answer 2

• The YTM is the internal rate of return (IRR) on a bond if you purchase the bond at its current market value, collect all the interest payments, and then receive the bond’s face value back upon maturity.
• The YTM is used to price bonds; if the YTM is below the coupon rate, the bond is trading at a premium to face value, and if the YTM is above the coupon rate, the bond is trading at a discount to face value.

Question 3

Shares/stock vs bonds

Answer 3

Shares/stock:
- Part owner of company
- Equity = assets - liabilities

Bonds:
- Part lender to the company

Question 4

How much are you willing to pay for shares according to their book value?

Answer 4

Equity book value (i.e. equity = assets - liabilities) / number of shares

This might be more or less than the price being paid on an exchange for this share

Question 5

What’s the forward interest rate formula?

Answer 5

RF = R2 + (R2 - R1) * T1 / (T2 - T1)

Question 6

What’s the trafo formula from continuous to m times compounding per year?

Answer 6

Rm = m * (exp(Rc / m) - 1)

Question 7

What’s the trafo formula from m times to continuous compounding per year?

Answer 7

Rc = m * log(1 + Rm / m)