Sales & Trading
27 derivatives questions of the kind asked in sales & trading interviews. Each carries a model answer, the concepts a complete response must hit, and graded feedback on your own attempt.
A basic client-coverage question that tests whether you match an instrument to a real exposure.
Distinguish an FX spot trade, forward and option. Give one sensible use case for each.
Asked in markets interviews to see whether a candidate recognises that a profitable trade can still create credit exposure.
Two companies enter an over-the-counter FX forward. Six months later it has a $4m positive mark-to-market for Company A. What counterparty risk does Company A face, how does collateral reduce it, and why is the exposure…
A sales-and-trading first round checks whether a candidate can convert a foreign-currency liability into the client's functional currency.
A US company issues a five-year EUR 100m bond because euro funding is attractive, but it earns almost all of its cash flow in US dollars. Explain how a cross-currency swap can change the company's economic exposure. What…
A futures-market fundamental that separates derivative exposure from the cash posted to support it.
You go long one crude-oil futures contract representing 1,000 barrels at $80 per barrel. Initial margin is $6,000. If the futures price falls to $77 overnight, what happens economically and why is the $6,000 not the cost…
A practical rates-interview prompt on how traders read the market's central-bank expectations.
What is an overnight indexed swap (OIS), and why does a rates trader use it to discuss expected central-bank policy?
A common loan-documentation question for transitional real estate lenders.
Why might a lender require a floating-rate borrower to buy an interest-rate cap?
A common sales and trading screen testing whether you can connect a derivative to a corporate financing problem.
A company has $100m of floating-rate debt paying SOFR plus 2%. It fears rates will rise. Explain the simplest interest-rate swap it could enter, what cash flows it would exchange, and what risk remains after the hedge.
A desk arithmetic test after a candidate proposes a cap as protection for floating-rate debt.
A borrower has $50m of 90-day SOFR debt paying SOFR plus 1.80%. It buys a cap on $50m with a 4.00% strike for the same 90-day period. If realised SOFR fixes at 5.20%, calculate the cap payment and the borrower's net…
A product question for hedge funds trading credit through both bonds and derivatives.
What is the CDS-cash basis and why can it become negative or positive?
A credit trading interview uses this scenario to test trade expression, financing and basis risk rather than a generic CDS definition.
You expect a leveraged retailer's credit to weaken before earnings. Its five-year cash bond trades at 94 with a 7.0% coupon, while five-year CDS trades at 520bp. Should you short the bond or buy CDS protection? Explain…
The client conversation an FX sales desk has daily.
A US corporate expects €100m of revenue over the next year. Walk me through the hedging options and what you'd recommend.
Core product knowledge for any rates or corporate derivatives desk.
Explain an interest rate swap. A corporate has floating rate debt and wants fixed. What do they do, and what is a swap spread?
The foundational calculation on any FX desk.
EUR/USD spot is 1.0800. US rates are 4%, euro rates 2%, both for one year. What is the one-year forward, and why can't it be anything else?
A treasury scenario lab combining exposure math, hedge sizing and policy judgement.
Your company expects a EUR receivable in three months. Calculate the exposure and budget risk as certainty changes, then recommend a hedge that protects margin without over-hedging.
A structuring-superday judgement question: explain a popular product's economics without hiding its tail risk.
A client asks for a one-year autocall linked to a volatile technology stock: it pays a 14% coupon if the stock is at or above its initial level on each monthly observation date, redeems early if that condition is met,…
A client-facing structuring case testing whether you can translate an operating exposure into a proportionate hedge recommendation.
A US manufacturer will pay EUR 50m for components in six months. Its gross margin is only 8%, it cannot pass through a sudden euro appreciation immediately, and management wants protection but does not want to lose all…
The organising concept for any commodities desk.
Explain contango and backwardation. What determines the shape of a commodity curve, and what does it mean for someone holding a long position through futures?
A classic strategy that tests whether you can decompose a hybrid instrument.
Explain convertible arbitrage. What are you actually long, and what happened to the strategy in 2008?
Essential for credit trading and credit hedge fund interviews.
Explain a credit default swap. If a 5-year CDS trades at 300bp and you think the company will default, what do you do. And what determines your payoff?
An FX structuring discussion after a client finds that its hedge economics diverged from its USD funding exposure.
A European company funds a US acquisition with USD debt and uses EUR/USD cross-currency swaps to hedge interest and principal. EUR/USD spot moves in its favour, yet the reported hedge mark-to-market loss is large and…
A structuring-superday case on whether a high coupon is compensation for a risk the client has not identified.
A client can buy either a one-year 10% coupon note linked to one technology stock or a 16% coupon note with otherwise similar terms linked to the worst performer of three technology stocks. In both cases, if the relevant…
A credit desk interview uses this to test hedge selection, basis risk and sizing rather than a memorised CDS definition.
You are long $20 million of a five-year high-yield cash bond. You expect a broad risk-off move over the next month but want to keep the issuer-specific position. Explain how you could hedge, what you would short, and the…
Core to securitised products desks; also a favourite curveball in rates interviews.
Explain how a mortgage-backed security works and why it exhibits negative convexity. What is convexity hedging and how can it amplify moves in the rates market?
A cross-product structuring case used to test whether a candidate can explain an equity derivative, accounting-sensitive client objective, and dealer hedge in one answer.
A company wants to spend $500m repurchasing stock but wants most shares delivered immediately, before a two-month execution period ends. A bank proposes an accelerated share repurchase (ASR) priced off the eventual…
A recurring relative value trade on credit desks, and a lesson in what arbitrage really requires.
A company's 5-year bond trades at a 300bp spread while its 5-year CDS trades at 250bp. Is there a trade?
A derivatives-risk interview uses this to test whether you recognise nonlinear exposures before discussing a VaR number.
A book is delta-neutral at the start of the day. Why can it still lose heavily after a large market move? Explain the role of gamma, volatility and hedging liquidity.
A harder ECM question on the investor base and execution consequences of an equity-linked deal.
Why do convertible-arbitrage investors short a company's stock after buying its convertible bond, and what does that mean for the issuer?
Write your answer, get it graded on technical accuracy, completeness and communication, and see exactly which mechanic you missed.
Firm names indicate where a question type is commonly reported in interviews. They are not sourced from, endorsed by, or affiliated with the firms named.