RBS, sales and trading (Interest rates and IR derivatives), (internship)

Question

Tomorrow the ECB is meeting. If you expect rising short term interest rates, what kind of zero-duration structure could you advise to clients and how do you calculate P&L for this structure?

Answer

I would suggest shorting Schatz futures and longing Bobl futures. The structure is zero-duration as long as the %weights are correlate inversely w/duration. P&L is calculated as: interest rate shift*BPvalue*futures_price*point_value*number_of_futures

Question:

What does duration mean, how do you calculate it and could you think of a fixed-income instrument whose duration is negative

Answer:

I answered using my knowledge from books and reasoned with the interviewer about negative duration.

Question:

If I were a pension fund manager, what would you tell me if you were selling a structured portfolio strategy?

Answer:

I quietly started talking about upsides of these strategies (low correlation, variable leverage, ease of access through bank's capabilities...) and the fact they can enhance asset's returns with low commitment of capital and no correlation with ordinary business.

These questions were provided to us by a candidate claiming to have interviewed at the institution named above. We cannot guarantee that these were the actual questions asked.