INTERVIEW QUESTIONS: Deutsche Bank, Sales and Trading, Graduate Programme
Your client is a hedge fund that requires you to analyse a certain subsector of the FTSE 100 to identify trading strategies based on volatility. How do you approach the analysis?
I said I would take the last one or two years of data for each stock, compute their historic monthly volatility (i.e. standard deviation), allocate all stocks into three categories of volatility for each month (low, medium, high), check in which category the stocks fell in the following period, and build a trading strategy using options: long straddle or strangle if the forecast is for an increase in volatility compared to current values, long butterfly spread if the forecast is for volatility to stay the same or decrease
How do you construct an exchange traded fund (ETF) and what factors do you take into consideration when you're doing so?
I said you would need to identify a subset of stocks/indices/commodities that you want to replicate, identify a base value for the index, buy an initial position and re-balance it over time. You would also need to consider the expenses incurred in the re-balancing process, to think about whether similar ETFs already existed on the market, and to advertise it to potential clients. The interviewer added that you would need to consider the liquidity of the assets included in the ETF.
Do you believe there is a bubble in the bond market?
I differentiated between government and corporate bond markets. For the former, I said I didn’t believe there was any bubble, just genuine central bank purchases which will fade in the future. For the latter, I said there may be a bubble, given the narrow credit spread charged on recent junk bond issuances. However, I said that any bubble is at least helping to make the economy grow and is temporary, as yields will go up again when investors become less risk-averse and turn to equities again.
We cannot guarantee the authenticity of these questions nor the accuracy of the answers: they are what one candidate claims to have been asked by HSBC and have not been verified by the bank. To visit our list of banks’ graduate interview questions in 2013, click here.