Jun 10, 202212 min read

Finance Analyst Interview Question & Answers

Updated: Jun 10, 2022

Finance Analyst Interview Question & Answers for Fresher and Experienced who are looking for a Job, These Questions Can be beneficial to the Graduate, Post Graduate Students, and working professionals who want to be the part of Corporate Companies like JPM, MS, BNY & TCS

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1. What is Capital Market or Securities Market? 2. Primary Market 3. Secondary Market 4. What is Money market? 5. What are the Primary Market and its type? 6. Difference between Money market and Capital market? 7. What is IPO – Initial Public Offering? 8. What is Public Issue? 9. What is Right Issue? 10. What is Private Placement? 11. What is Preferential Share? 12. What is the difference between Primary and Secondary Market? 13. What is difference between Equity Share and Preferential Share? 14. What are the Debt Market and its type? 15. What are the Debenture and its types? 16. What is Bonds? 17. Difference between Bonds and Debentures? 18. Difference between Equity or Stocks and Bonds? 19. What is Equity? 20. Difference between Stock and share? 21. What is Index? 22. What is NSE, BSE, Sensex, Nasdaq,NYSE? 23. What are PE, EPS, MV, BV, and Face Value? 24. What is Corporate Action? 25. What is Corporate Restructuring? 26. What are Bonus, Dividend, Dividend Yield, Stock Split, Buy Back, Spin-off, and Yield? 27. What is Portfolio management? 28. What is Derivative and it’s Type? 29. Future 30. Option – Call and Put option, Swap 31. Difference between future and option? 32. Difference between future and forward contract? 33. Difference between Hedgers, Speculators, and Arbitrageurs? 34. What is Demat? 35. What is Depository? 36. What is the Securities trade life cycle? 37. Margin trading and settlement of contracts? 38. What is a Merger and acquisition?

What is Capital Market or Securities Market? Capital Market: Capital Markets are financial markets for buying and selling long-term debt or equity-backed securities. (Why Capital Market) · Companies and government making long-term investments.

Types of Capital Market

1. Primary Market 2. Secondary Market Primary Market: Very First-Time new stock or bond issues are sold to investors. · To raise long term funds (Why Primary Market) Secondary Market: Existing securities are sold and bought among Investors .

What are the Primary Market and its type? First-Time new stock or bond issues are sold to investors, is called Primary Market or Gray Market · To raise long term funds Primary Market Type: 1. Initial & Further Public Issue & P 2. Right Issue3. Private Placement4. Preferential Share

What is the Money market? The money market is a financial instrument where the trade in the ,short term with high liquidity assets. Ex- loans between Banks and other financial instruments.Bill of Exchange, T- Bill, Call Loans etc

Difference between the Money market and the Capital market? Money markets are used for raising short-term finance such as Loan While Capital markets are used for raising long term finance such as Purchase of shares or may be for Arbitrage etc . Money Market is for Short term financial Instruments where securities will be traded for Max to Max One year only. Funds borrowed from the money markets are used for general operating expenses while company borrows from Primary markets and the purpose is to increase its income.

The Capital Market is for Long terms securities where Private and Government Bodies raise the capital through Stocks and Bonds.

It's an open platform where investors come together (Buyer and Seller ) and raise the fund for Long term Prospects or maybe for debt repayment etc.

What is IPO – Initial Public Offering? IPO is the first sale of stock by a company to the public. Private Ltd company convert into the Public Limited after this IPO Corporate action events.

What is Public Issue? The company issues a prospectus and invites the public to purchase shares or debentures, is called a Public issue. What is Right Issue? When an existing company issues new shares, first of all it invites its existing shareholders. This issue is called Right Issue. The shareholder has the right either to accept the offer for himself all of his right in favor of another person

What is Private Placement? The company sells securities to the institutional investors or brokers instead of public, is called Private Placement. They sell these securities to the selected clients at higher price. This method preferred as of raising funds as compared to public issue. What is Preferential Share? A Preferential Share have a right to receive dividend at fixed rate before any dividend given to equity shares. A Preferential Share have a right to get their capital returned, before any capital of equity shareholders is returned in case the company is going to wind up. Difference between Primary and Secondary Market? Primary Market: 1. Very First Time new stock or bond , Debenture , Loans issues are sold to investors. 2. In the primary market Money earn from the investors through selling a securities

Secondary Market: 1. Existing securities are sold and bought among investors. 2. Money earn from buying and selling a securities , securities does not go to the company that play between investors Difference between Equity Share and Preferential Share?

Preferential Share Equity Share

Preferential Shares are paid dividend before the equity shares. Equity Shares are paid dividend after the preferential Shares

In Preferential Shares Rate of dividend is fixed In Equity Shares Rate of dividend is decided by the Board of Directors, year to year depending on profits

Preferential Shares may be converted into equity Shares , but Equity Shares are not convertible.

Preferential Shareholders do not have the right to participate in the management of the company , Equity Shareholders have the right to participate in the management of the company

Preferential Share holders carry the Preference Voting right. Vote only in Special circumstances. Equity Shareholders have the Voting right in all circumstances.

What are the Debt Market and its type? The debt market is the market where debt instruments are traded. Debt instrument are that require a fixed payment to the holder, usually with interest. Ex- Bonds (Government or Corporate) and Mortgages Type of Debt Market 1. Government securities market 2. Corporate Debt market 3. Loans Market What are the Debenture and its types? Debenture is a medium long term debt instrument used by governments and large companies to borrow money at a fix rate of interest. (Why Debenture) Debentures are generally freely transferable by the debenture holder. Debenture holders have no voting rights The interest paid to them is a charge against profit.

Types of Debenture

1. Convertible Debenture2. Non-Convertible Debenture Convertible Debentures which can be converted into equity shares of the issuing company after a predetermined period of time. Non-Convertible Debenture which cannot be converted into equity shares of the liable company. They usually carry higher rates than the Convertible Debenture What is Bonds? Bonds are actual contract notes issued by the borrower to pay interest at regular intervals and return the principal on the maturity of the bond. These bonds are issued by the companies for their expenses and future expansions. Difference between Bonds and Debentures? 1. Bonds are more secure than debentures. 2. Bonds carries low rate of interest while Debenture carries higher rate of interest (that’s why Bonds more secure) 3. If there is any bankruptcy, bondholders are paid first and the liability towards debenture holders is less. 4. Bond holders do not receive periodical payments but Debenture holders get periodical interest. 5. Bond holders get principal plus interest accrued upon completion of term But Debenture holders get principal amount. Difference between Equity or Stocks and Bonds? 1. Stockholders are investors while bondholders are creditors. 2. Stock market has central trading places i.e. Stock exchange While Bond market does not have central trading places. Bonds are sold mainly Over the counter(OTC) 3. Bond market is less risky than investing in a stock market 4. Bond market is not volatile as the stock market is. What is Equity? The percentage of ownership of a company is known as Equity.

What difference between Stock and share? Stock describe the ownership certificate of any company while Share refer to the ownership certificate of a Particular company What is Index? Measures the change in stock prices of the index components is called Index.It represent the direction of market. Ex- Nifty, Sensex,Bank Nifty…etc What is NSE, BSE, Sensex,Nasdaq, NYSE? · NSE – National Stock Exchange National Stock Exchange established in 1992 as first Dematerialized electronic exchange in country,located in Mumbai. Top 50 Companies listed in NSE. Ex- INFY, SBIN, TCS, WIPRO,HDFC BANK etc… · BSE – Bombay Stock Exchange Bombay Stock Exchange established in 1875, located in Dalal Street Mumbai. Top 30 companies listed in BSE. Ex- LT, M&M, NTPC etc… · Sensex – Sensitive Index The Sensex was introduced by the Bombay Stock Exchange on 1st January 1986. The sensex designed to reflect the overall market sentiments. It comprises of 30 stocks. These are large, well-established and financially sounded companies from main sectors. · NASDAQ – National Association of Securities Dealers Automated Quotations National Association of Securities Dealers Automated Quotations established in 4th February 1971located New York City, New York, United Sates. NASDAQ is an American stock exchange. It is the second largest exchange in the world by market capitalization. · NYSE – New York Stock Exchange New York Stock Exchange established in 8th March 1817. Sometimes known as “Big Board” is an American Stock Exchange located at 11th Wall Street Lower Manhattan, New York City,United States. It is World’s largest stock exchange by market capitalization and Trade value.

What are PE, EPS, MV, BV, and Face Value? · PE – Price Earnings “The ratio between the current price of the share to its Earnings per shares” PE = Current price of share / Earnings per shares · EPS – Earnings Per Shares “EPS is the portion of company’s profit that is allocation to each outstanding share of common stock” EPS = Net Income / Average outstanding common share · BV – Book Value“the Company’s Net worth (which is paid up Capital+ Reserves &Surplus)” divided by a number of Outstanding Shares. · MV – Market Value “the ratio between the Market price of share and Book value of share” MV = Market price of share / Book value of a share · Face Value - The nominal value or dollar value of a security stated by the issuer. For stocks,it is the original cost of the stock shown on the certificate. For bonds, it is the amount paid to the holder at maturity (generally $1,000) What are Corporate Action and its type? A corporate action is an event initiated by Public company that affects the securities (i.e.Equity, Debt) issued by the company. Some Corporate Action such as Dividend, Stock Split, Spin off, Coupon Payment etc… (Why Corporate Action) · Return profits to shareholders · Influence the share price (Stock price too High or too Low) · Corporate Restructuring Type of Corporate Action 1. Mandatory Corporate Action2. Voluntary Corporate Action3. Mandatory with Choice Corporate Action·

Mandatory Corporate Action: A mandatory Corporate Action is an event initiated by the Board of Directors that affect all shareholders. They have no choice elect to participate in the Action All the shareholders are entitled to receive the dividend does not need to do anything to get the dividend.

Ex- CASH Dividend · Voluntary Corporate Action: Voluntary Corporate Action is an action where the shareholders elect to participate in the Action. A response is required by the corporate action to process the action.

Ex- Tender offer A corporation may request to shareholders to tender their share at a pre-determined price. The shareholder may or may not participate in the tender offer. Shareholders send their response to the Corporate Agent and the Corporation will send the proceeds of the actions to the shareholders who elect to participate.

Ex- CASH /Stock Dividend option,

the shareholder can elect to proceeds of the dividend either CASH / Additional shares of the corporation.

· Mandatory with Choice Corporate Action: Mandatory with Choice Corporate Action is Mandatory Corporate Action where shareholders are given a chance to choose among several options Ex- CASH / Stock Dividend option with one of the option as default, shareholders may or may not submit their election. In case shareholder does not submit their election then default option will be applied. What is Corporate Restructuring? When need a company to improve its efficiency and profitability and it requires expert corporate management. A corporate restructuring strategy involves the dismantling and rebuilding of areas within an organization that need special attention from the management & CEO. The process of corporate restructuring occurs after Buy-outs, corporate acquisitions, takeovers or Bankruptcy. What are Bonus, Dividend, Dividend Yield, Stock Split,Buy Back, Spin-off, and Yield? · Dividend A dividend is a distribution of profits to its shareholders, decided by the board of directors. Dividends can be issued as Cash dividend, as Stock dividend.It is taxable payment.

· Bonus shares Bonus shares are additional shares given to the shareholders without any additional cost, based upon the number of shares that a shareholder owns · Dividend Yield The dividend yield or dividend-price ratio of a share is the dividend per share, divided by the price per share.It is also a company's total annual dividend payments divided by its market capitalization. Dividend yield is used to calculate the earnings on investment (shares)considering only the returns in the form of total dividends declared by the company during the year. · Stock split A stock split is a decision by the company's board of directors to increase the number of shares that are outstanding by issuing more shares to existing shareholders. For example, in a 2-for-1stock split, every shareholder with one stock is given an additional share. So, if a company had 10 million shares outstanding before the split, it will have 20 million shares outstanding after a 2-for-1 split. A stock's price is also affected by a stock split. After a split, the stock price will be reduced since the number of shares outstanding has increased. In the example of a 2-for-1 split, the share price will be halved. Thus, although the number of outstanding shares and the stock price change, the market capitalization remains constant. · Buy back The repurchase of outstanding shares by a company in order to reduce the number of shares on the market. Companies will buy back shares either to increase the value of shares still available (reducing supply), or to eliminate any threats by shareholders who may be looking for a controlling stake. · Buyout The purchase of a company's shares in which the acquiring party gains controlling interest of the targeted firm. Incorporating a buy out strategy is a common technique used to gain access to new markets and is one of the most common methods for inorganically growing a business.

· Spin-off Spin-off is a division of existing company or organization that becomes an independent business. · Yield The income return on an investment This refers to the interest or dividends received from a security and are usually expressed annually as a percentage based on the investment's cost, its current market value or its face value. If you buy a stock for $30 (cost basis) and its current price and annual dividend is $33 and $1, respectively, the "cost yield" will be 3.3% ($1/$30) and the"current yield" will be 3% ($1/$33). What is Portfolio management? Portfolio management refers to the professional management of securities and other assets. Ex- Asset management, Wealth management What is Derivative and it’s Type? Derivative is a financial instrument which derives their value from some underlying asset. Underlying asset are Equity,debt, currencies etc. (Why Derivative) · Increase hedge for investors in the cash market · Increase volume of transaction · Low transaction cost · Increase liquidity Type of Derivative 1. Future2. Option3. Swap

Future Future contract is an agreement between two parties where Buyer agree to buy an underlying asset from sellers at a future date at a price. (Why Future) · Both buyer and seller are under obligation to fulfill the contract. · No counterparty risk.

· Standardized contract · Fixed settlement date declared by exchange Option Option contract that gives the owner right, if exercise to buy or sell a security at a specific price with a specific time limit. (Why Option) · Buyer of the option contract has the right and not obligation whereas the seller is under obligation to fulfill the contract. · Profit unlimited, risk limited. Type of Option 1. Call Option2. Put Option · Call option Call option give the owner right but not obligation to buy the underlying asset at a given price by a given time When you think market will be going up then buy Call option · Put Option Put Option give the owner right but not obligation to sell the underlying asset at a given price by a given time. When you think market will be going down then buy Put Option. · Swap A swap is an agreement between two parties to exchange cash flows for a set period of time. Swaps are not exchange-traded instruments. Instead, swaps are customized contracts that are traded in the over-the-counter (OTC) market between private parties Swaps occur on the OTC market, there is always the risk of a counterparty defaulting on the swap. Difference between future and option? · Both buyer and seller are under obligation to fulfill the contract while Buyer of the option contract has the right and not obligation whereas the seller is under obligation to fulfill the contract.

· In future Limited Profit and Unlimited risk while Unlimited Profit and limited risk Difference between future and forward contract? Forward Contract

Privately Negotiated Contract , Futures are No Negotiation Contract

Forwards are Not standardized contract Futures are Standardized contract

In forward Settlement date can be set by parties and in Futures Fixed settlement date will be declared by exchange

In forward you may see the High counterparty risk and in Future No counterparty risk

Difference between Hedgers, Speculators, and Arbitrageurs? · Hedgers Hedgers are trying to reduce their risk through take a position in the derivatives market Eliminate volatility Take opposite position · Speculators Speculators are taking a risk on price movement Up or Down, in the hope of obtaining a profit. One side position · Arbitrageurs Arbitrageurs are an act of buying asset in one market and selling in another at higher price.It is risk free, they are taken simultaneously position. Leaving no uncovered position What is Demat? Where securities are stored in electronic form. What is Depository? Depository is securities bank where decartelized physical securities are held in custody, from where they can be traded. Faster, risk free, low transaction cost settlement Type of Depository NSDL – National Securities Depository Limited CSDL – Central Depository Service Limited What is Securities trade life cycle? 1. Order initiation and execution. (Front office function) Trade Date 'T' 2. Risk management and order routing.(Middle office function) 'T+1'

3. Order matching and conversion into trade. (Front office function) Trade date work 'T' 4. Affirmation and confirmation. (back office function) settled the trade 'T+2' 5. Clearing and Settlement. (back office function)