20+ Derivative Analyst Interview Questions and Answers

Primary market is where new securities are issued and sold for the first time, while secondary market is where existing securities are traded among investors.

• Primary market involves the issuance of new securities by companies or governments.

• In the primary market, securities are sold directly by the issuer to investors.

• Examples of primary market transactions include initial public offerings (IPOs) and bond issuances.

• Secondary market involves the trading of existing securities ...read more

OTC refers to over-the-counter trading, while exchange traded refers to trading on a formal exchange.

• OTC trading occurs directly between two parties without the involvement of an exchange.

• Exchange traded refers to trading on a formal exchange, where trades are standardized and regulated.

• OTC trades are typically less transparent and have higher counterparty risk compared to exchange traded trades.

• OTC derivatives are customized contracts, while exchange traded derivatives are s...read more

Derivatives are financial contracts that derive their value from an underlying asset. Option Greeks are measures of an option's sensitivity to various factors.

• Derivatives can be used for hedging or speculation.

• Option Greeks include Delta, Gamma, Theta, Vega, and Rho.

• Delta measures the change in option price for a change in the underlying asset price.

• Gamma measures the change in Delta for a change in the underlying asset price.

• Theta measures the change in option price for a ch...read more

I will manage both amounts effectively by following a structured investment approach and diversifying the portfolio.

• I will assess the risk appetite of the investor and invest accordingly

• I will diversify the portfolio across different asset classes and sectors

• I will follow a structured investment approach and regularly monitor the portfolio

• For the larger amount, I will consider investing in derivatives to hedge against market risks

• I will keep the investor informed about the pe...read more

My goal is to analyze the current market price and make informed decisions to maximize profits.

• My goal is to stay up-to-date with market trends and news

• I will use data analysis tools to identify potential opportunities

• I will develop and implement trading strategies to maximize profits

• I will constantly monitor and adjust my strategies as needed

• For example, if the current market price for a particular derivative is low, I may buy it with the expectation that it will increase in...read more

Greek options are measures of sensitivity of option prices to various factors.

• Greek options include delta, gamma, theta, vega, and rho.

• Delta measures the change in option price with respect to the underlying asset price.

• Gamma measures the change in delta with respect to the underlying asset price.

• Theta measures the change in option price with respect to time.

• Vega measures the change in option price with respect to volatility.

• Rho measures the change in option price with respec...read more

Derivatives are financial instruments whose value is derived from an underlying asset or benchmark.

• Derivatives can be classified into four main types: futures contracts, options contracts, swaps, and forward contracts.

• Futures contracts are agreements to buy or sell an asset at a predetermined price and date in the future.

• Options contracts give the holder the right, but not the obligation, to buy or sell an asset at a specified price within a certain time period.

• Swaps involve ...read more

Companies buy back their own shares to return capital to shareholders and signal confidence in the company's future.

• Buybacks can increase the value of remaining shares by reducing the number of outstanding shares.

• It allows companies to utilize excess cash and improve financial ratios.

• Buybacks can be used to offset dilution caused by employee stock options or convertible securities.

• Companies may buy back shares to prevent hostile takeovers or to consolidate ownership.

• Buybacks ...read more

Futures are standardized contracts traded on exchanges, while forwards are customizable agreements traded over-the-counter.

• Futures contracts are standardized in terms of contract size and expiration dates, while forwards can be tailored to the parties' needs.

• Futures are traded on exchanges, providing liquidity and transparency, whereas forwards are private agreements between parties.

• Futures require daily settlement of gains and losses (mark-to-market), while forwards settle a...read more

OTC market is regulated by various regulatory bodies depending on the type of financial instrument being traded.

• In the US, the Commodity Futures Trading Commission (CFTC) regulates OTC derivatives such as swaps and options.

• The Securities and Exchange Commission (SEC) regulates OTC stocks and bonds.

• In Europe, the European Securities and Markets Authority (ESMA) regulates OTC derivatives.

• Regulations aim to increase transparency, reduce risk, and protect investors.

• OTC market par...read more

Derivatives are created to manage risk, speculate, and hedge against market fluctuations.

• Derivatives allow investors to take positions on the future value of an underlying asset without actually owning it.

• They can be used to hedge against potential losses or to speculate on potential gains.

• Derivatives can also be used to manage risk by providing a way to transfer risk from one party to another.

• Examples of derivatives include futures contracts, options, and swaps.

• Derivatives a...read more

Derivatives are financial instruments that derive their value from an underlying asset or security.

• Derivatives can be used for hedging or speculation.

• Common types of derivatives include futures, options, and swaps.

• Derivatives can be traded on exchanges or over-the-counter.

• Derivatives can be used to manage risk or to take on additional risk for potential profit.

• Examples of underlying assets include stocks, bonds, commodities, and currencies.

My last risk was investing in a startup that failed to secure funding.

• Invested a significant amount of money in a startup

• Startup failed to secure funding and had to shut down

• Lost the invested money as a result

Expiry dates in markets refer to the date on which a derivative contract expires.

• Expiry dates determine when the contract ceases to exist and the parties involved must fulfill their obligations.

• They are important for traders to plan their positions and manage risk.

• Different markets have different expiry dates for their derivative contracts, such as monthly, quarterly, or annually.

• For example, in the futures market, contracts typically expire on the third Friday of the expirat...read more

Futures are an obligation to buy/sell an asset at a specific price on a future date, while options give the right but not obligation to buy/sell at a specific price on or before a future date.

• Futures are standardized contracts traded on exchanges, while options are customized contracts traded over-the-counter.

• Futures have unlimited profit and loss potential, while options have limited risk and unlimited profit potential.

• Futures require margin, while options require a premium....read more

Primary market is where securities are created and sold for the first time, directly from the issuer to the investor.

• Securities are issued by companies or governments to raise capital.

• Investors purchase securities directly from the issuer in the primary market.

• Examples include initial public offerings (IPOs) and bond issuances.

Trade life cycle refers to the stages involved in a trade from initiation to settlement.

• Trade initiation: Trade is proposed and agreed upon by parties involved.

• Trade execution: Trade is executed on the market.

• Trade confirmation: Parties confirm the details of the trade.

• Trade settlement: Payment and transfer of securities occur.

• Trade reconciliation: Ensuring all details match between parties.

• Trade reporting: Reporting the trade to relevant authorities.

• Trade lifecycle can vary ...read more

Forwards are customized contracts traded over-the-counter, while futures are standardized contracts traded on exchanges.

• Forwards are customizable in terms of contract size, expiration date, and delivery terms, while futures have standardized contract specifications.

• Forwards are traded over-the-counter (OTC) directly between two parties, while futures are traded on exchanges with a clearinghouse acting as a counterparty.

• Forwards have higher credit risk due to lack of a clearin...read more

IndusInd Bank is known for its innovative banking solutions, customer-centric approach, and strong financial performance.

• IndusInd Bank has a strong track record of financial performance and growth.

• The bank is known for its innovative banking solutions, such as the first interactive credit card in India.

• IndusInd Bank has a customer-centric approach, focusing on providing personalized services and building long-term relationships with customers.

Types of risk include market risk, credit risk, operational risk, liquidity risk, and systemic risk.

• Market risk: the risk of financial loss due to changes in market prices

• Credit risk: the risk of loss due to a borrower's failure to repay a loan or meet contractual obligations

• Operational risk: the risk of loss due to inadequate or failed internal processes, people, and systems

• Liquidity risk: the risk of loss due to the inability to meet financial obligations as they come due

• Sy...read more

A call option is a financial contract that gives the holder the right, but not the obligation, to buy an asset at a specified price within a specific time period.

• Call options are commonly used in stock trading and can be bought or sold on various financial markets.

• The specified price at which the asset can be bought is known as the strike price.

• The specific time period during which the option can be exercised is known as the expiration date.

• Call options are used by investors ...read more