Graduate Investment Banking Interview Questions – Part 2

Opening City Doors is about more than both Graduate Programmes and Investment Banking. However, for you aspiring Bankers here is Part 2 of typical Investment Banking questions to expect at interview. The questions below are less about you, your fit and competency for IB, more about your technical and commercial awareness.

Tell me what an Investment Bank actually does?

Sounds an easy question and yes it is if you’ve prepared for it;a tricky question if you haven’t. A key point to remember is banks bring buyers and sellers together. They “make markets” (give prices at which they will buy and sell the same security). They also raise capital for both corporate and government clients and generally assist such clients meet their financial needs.

What is the difference between Developed Markets and Emerging Markets?

Understand that Developed Markets consist of higher quality borrowers (i.e. issuers of shares and bonds) and have deep and liquid capital markets facilitating continuous trading in most market conditions e.g. US, UK, Ger, Japan. Emerging Markets,on the other hand, have less stable economic and political backdrops with therefore weaker borrowers with more risk of default on their financial obligations so investors are offered potentially higher returns to part with their capital. Emerging Markets are less liquid e.g. Argentina, Brazil, Indonesia, Poland.

What stock (share) would you recommend and why?

There is no right or wrong answer here. Pick a stock; outline a recommendation plus three key reasons for that recommendation.The justification is more important than correctness.

What happens in an M&A or IPO transaction?

For M&A this might be something like: Preliminary Valuation Analysis/Setting Expectations; Prepare Marketing Materials; Execute Marketing Programme; Preliminary Due Diligence; Final Bids, Negotiation and Buyer Selection. For an IPO the following stages occur: Hiring the Managers (Beauty Contests etc.); Due Diligence & Drafting; Marketing (Road Show) and finally the stock starts trading.

As you approach interview season you to need expose yourself to market news; Opening City Door fortnightly Market Updates on the Home Page should be a good starting point but you need more. Be ready for ready for; 

  • What are the main drivers in the financial markets right now?
  • Describe a recent takeover?
  • Tell me about a news article relating to the industry that you found interesting and why?
  • Describe a recent event that a had a big impact of financial markets.
  • What do you know about financial regulation? How might this impact our business?
  • What did the FTSE 100 close at yesterday?
  • What does the 10 Year US Treasury Bond yield?

See Financial Market Benchmarks For Interview. 

You may also be asked brainteaser questions to see how you think and react under pressure. Again often these questions have no right answers and they are asked to see the logic and approach you use.   ​

What is the angle between the hour-hand and the minute-hand of a clock at 3.15?

The above is a type of brainteaser where there is a correct answer but they still want to see your thought process as far as it can go – this is what they are assessing. This is very common and it is testing your attention to detail in terms of whether you have integrated the fact into your logic that the hand moves one quarter round between 3 and 4 because of it being fifteen minutes past. The clock has 360 degrees so there is 90 degrees between 3 and 6. Divide again to get the difference between each hour and then find what a quarter of this would be.

You are buying a boat and have the option to either buy the boat now at £10,000 or pay £12,000 in three years’ time. What option are you going to take?

This question is looking for your understanding of basic concepts in finance such as present value, future value and discount rates. It is based on the principle that a £1 today is worth more than a £1 tomorrow.

An important point to note is that Investment Bankers do not have the time to come up with their own brainteaser questions. This means they will usually use Google and perhaps change the data a bit. So most of the questions you will be asked are all available via Google (search Investment Banking brainteasers). It is impossible to cover them all but if you work through half a dozen that will probably give you the practise you need.

Miscellaneous Questions to expect:

If I gave you a million pounds to invest for me, understanding that my risk appetite is healthy, how would you invest it?

The higher the risk appetite the more you would lean towards equity rather than bond investment? For a higher risk appetite you could also add some Emerging Market and Commodity exposure e.g.Gold, Silver.

What are the main asset classes? What is a Derivative ?

A little research  required.

Your Closing Questions

Towards the close of the interview you will be asked if you have any questions. Never ask the questions you really want the answer to e.g salary. Ask perhaps two or three questions which are ;

  • straight-forward for the interviewer to answer rather than put him / her on the spot
  • open-ended allowing the interviewer to talk on a bit if they so choose
  • continue to sell yourself

e.g  You mentioned about X, could you say a bit more about that?  (and when he / she is finished “Sounds good “).

e.g. Can you tell me what the next steps are please should I be successful in progressing to next stage (this also gives them a mental image of you progressing to the next stage!)

e.g. Has the culture of xyz been your experience here?

Interview formats will differ by bank. At some you will just be interviewed by HR personnel. At others perhaps by HR and an Analyst or Associate. Others will use more senior Vice Presidents from the business.The further you progress in the process the more business personnel will be involved.

Whoever interviews you you will need to convince them

  • you have a real passion for the industry
  • you can fit in
  • you have the capabilities to perform

Finally in closing your conversation thank them for their time today using their exact surname (not many will do this and everyone likes to hear their own name) and say that from everything you have learnt today you remain very keen on a potential career with XYZ and look forward to hearing back from them.

Get their full name and email them with 24 hours stating the above.

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About Paul McCormick

Paul McCormick is the founder of Opening City Doors and is a Financial Market Specialist having worked for several leading Investment Banks and financial technology institutions additionally.He therefore provides a unique insight, and unusually broad perspective, into the opportunities available in London Financial Markets and related sectors and how to launch your career in the ‘City’.