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Capital Market Interview Questions

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Product Owner Training.

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Are you preparing for a capital market interview and wondering what kind of questions
you may face? Well, you’re not alone. Capital Market Interview Questions can be tricky,
and it’s essential to be well-prepared to make a good impression on the interviewer. A
capital market is a platform where companies and governments can raise funds by selling
shares, bonds, and other securities to investors. Capital markets are an essential part of
the global economy, and working in this field can be both challenging and rewarding. One
can take up various job roles in this field, including Banking & Capital Markets Manager,
Merchant Banker, Fund Manager, Stock Broker, and more. In this blog, we have compiled
a list of top Capital Market Interview Questions that will help you prepare for your
interview and increase your chances of landing that dream job. So, let’s dive in and
explore some of the critical questions you may encounter during a capital market
interview.

What is Capital Market?

A capital market is a financial market in which long-term debt or equity-backed securities

are traded. Capital markets channel the wealth of savers to those who can put it to long-
term productive use, such as companies or governments making long-term investments.
It is a market for securities where companies and governments can raise long-term funds.
It is a collection of markets where money is invested for long-term purposes. This blog
on Capital Market Interview Questions covers the most critical questions you should look
out for and expect during the interview process.

Capital markets interviews are conducted to assess a potential candidate’s ability to

analyze and provide insights into the current state of the markets. The interviewers will
be looking to gauge the candidate’s market knowledge, analytical skills, and ability to
communicate their thoughts clearly and concisely.
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Top 30 Capital Market Interview Questions

What Does Capital Market Mean? How Does the Company Raise Funds In The
Capital Market?

This is by far the most basic capital market interview question. The capital market is also
known as the financial market, where companies can raise their long-term capital. In this
market, they can trade, i.e., buy and sell long-term instruments like equity shares and debt
securities. The capital market is classified into two categories – Primary market and
secondary market.

Capital markets are where savings and investments are channeled between the public,
people or institutions with capital to lend or invest, and those in need. Suppliers typically
include banks and investors, and Majorly those who seek capital are businesses,
governments, and individuals.

Companies/Corporations have four methods that are used to raise funds in the capital
market.

 Equity shares/Ordinary stock– If the company wants to raise funds, it means

they have an excellent option to get the funds’ equity shares are a suitable option
available for the companies. The investors also look at records (like inancial
statements, dividends distribution, or credit rating for the instruments) and get
interested if the company pays high or reasonable dividends. Value of shares
increases if investors expect the market value to rise.
 Bonds- A bond is an amount of money that has to be given at a maturity date or
when they redeem the bonds. Bondholders receive a regular interest payment at
predetermined interest rates. Corporations issue bonds because interest rates that
must pay investors are lower than rates of borrowing, and holders, can sell bonds
to someone else before the maturity period.
 Preference shares- The company chooses this to raise capital. If a company has
inancial trouble, the buyers of shares get special status. If pro its are limited, then
owners will be paid the dividend after bondholders receive the interest.
 Debentures- companies used to raise medium-term or long-term capital by getting
the debt capital from investors or public, or other sources. First, preference will be
given to the debt holder during the payment of interest and repayment of the
investment.

What are the major elements/components of the capital market?

There are three major elements/components are there namely-

1. Primary market- In the primary market, also known as the new issue market or
fresh issue market, only IPOs ( Initial Public Offerings), so the name indicates that
initially, they issue the securities or newly issued shares sold only in the primary
market. The primary market does not include borrowed inance in the form of
loans from inancial institutions because when a loan is issued from a inancial
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institution, it implies converting private capital into public capital. This process of
converting borrowed capital into public capital is called going public. The common
securities issued in the primary market are equity shares, Preference shares
debentures, bonds, preference shares, and other innovative securities.
2. Secondary market- In the secondary market, all the existing securities are traded
in the market. In secondary markets, securities are not issued or traded by the
company to investors. Existing investors sell the securities to other investors.
Sometimes the investor needs cash, and another investor wants to buy the shares
of the company as he could not get it directly from the company. Then both
investors can meet in the secondary market and exchange securities for cash
through a broker intermediary.

In the secondary market, companies do not get any additional capital as securities are
bought and sold between investors only so directly there is no capital formation. Still, the
secondary market indirectly contributes to the capital formation or increase in the
market value of shares by providing liquidity to the securities of the company.

What are the major roles played by consultants in a capital market?

A professional in the capital market must have a thorough knowledge of the stock
markets in and out of the market condition. They must be up-to-date with the recent
events to predict exactly and help in trading shares, bonds, and securities. Moreover, they
must effectively advise high-profile individuals and organizations about optimal
investment, the right time to buy or sell, and increase profits. Financial planning and
giving accurate analytical advice to clients are two important aspects of the job role in the
capital market.

What are the limitations Of Capital Budgeting?

 The huge amount involved in capital budgeting, so the decision has to be taken
very carefully.
 The techniques of capital budgeting require estimation of future cash lows (in low
and out low of cash lows)
 Dependency of the information
 The problem of measuring future uncertain circumstances or situations.

What Are The Techniques Available For Evaluation Of Capital budgeting?

There are 7 tools, namely:

1. Net present value (NPV)

2. Payback Period (PBP)
3. Discounted payback period
4. Accounting Rate of Return (ARR)
5. Internal Rate of Return (IRR)
6. Modi ied Internal Rate of Return (MIRR)
7. Pro itability Index (PI)
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What is NPV (Net Present Value)? What Are Its Acceptance Rules, Their Advantages,
And Disadvantages?

In most capital market interviews, this is a technical question to test your in-depth
knowledge of the topic or concepts.

Net present value and Payback period methods are traditional methods of investment
decisions. Net Present Value is a term that shows the cash flow or EBIT (Earning before
interest and tax) worth of the company. It denotes both the cash inflow and outflow and
is calculated as the sum of the cash flow values.

It is a standard tool for capital budgeting analysis. It helps to calculate discounted cash
flow and if we have a positive NPV, then accept the project, and if there is a negative NPV,
reject the project. The formula for N P V is Cash flow (1 + i) t − initial investment.

Advantages of NPV

 It considers the time value of money (Present value / Future value)

 Easy to calculate compared with the other tools
 It considers all the cash lows from the project
 It gives the ranking according to the NPV value of different projects

Disadvantages of NPV

 It focuses on the short-term projects

 Few costs can’t be estimated when calculating NPV
 Not possible to compare different sizes of projects
 Dif iculty in determining the required rate of return

Explain Payback Period Technique For Evaluation Of Capital Expenditure Proposal.

The payback Period (PBP) is calculated with the help of cash flows and cumulative cash
flows. The project returns the investment in a short period that the project is accepted if
the period is longer than reject the project.

What are IRR and ARR?

Internal rate of return and Accounting rate of return is also the techniques used for
evaluating and analyzing the investment decision.

The internal rate of return is the discount rate or discount factor that makes the net
present value of a project zero. In simple words, it is the expected compound annual rate
of return that will be earned on a project or investment.

The accounting rate of return (ARR) is a formula that indicates the percentage rate of
return expected on an investment or project compared to the initial investment’s value.
The ARR formula divides an asset’s average revenue by the company’s initial investment
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to derive the ratio or return that one may expect over the lifetime of an asset or project.
The major drawback of ARR is not considering the time value of money or cash flows,
which can be an integral part of maintaining a business’s operational activity.

What are zero coupon bonds?

The recruiter/interviewer will check the conceptual background for the role.

Zero coupon bonds are bonds in which the face value or par value is repaid at the time of
maturity of the bond, but the investor will purchase this bond at a discounted price. It
does not make periodic interest payments, or they do not pay interest during the life of
the bonds, hence the term zero coupon bond. When the bond reaches maturity, its
investor receives its par value only.

What are Deep Discount Bonds?

In deep discounted bonds, when the bond matures, the company will redeem the investor
the full face value of the bond. A bond can be sold at par, at a premium, or a discount. A
bond purchased at par has the same value as the face value of the bond. A bond purchased
at a premium has a value higher than the bond’s par value. Over time, the value of the
bond decreases until it equals the par value at maturity. A bond issued at a discount price
below par value is known as a deep-discount bond.

Explain how you would value a company.

There are many ways of valuing a company, majorly 3 ways

1. Asset valuation- A company’s assets include tangible and intangible assets. Use the
book or market value of those assets to determine the business’s worth. Sum of all
the ixed and current assets and customer relationships as you calculate the asset
valuation of the business.
2. Earnings valuation- Earnings of the company determine its current value. If the
business struggles to bring in enough income to repay the expenses or owes its
value drops. Conversely, repaying debt quickly and maintaining a positive cash
low improves your business’s value. Use all of these factors as you determine the
business’s earnings valuation.
3. Discount cash low valuation- If the pro its are not expected to remain stable in the
future, use the discount cash low valuation method. It takes your business’s future
net cash lows and discounts them to present-day values. With those igures, you
know the discounted cash low valuation of the business and how much money the
business assets are expected to make in the future.
4. Can you describe your process for evaluating a company’s value?

Process of evaluation of company’s value

 Planning and preparation: for any business or any activity, planning, and
organizing are the irst steps because without proper planning cannot go blindly
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to any activity once the planning is done, and they need to prepare or organize the
things.
 Adjusting the company’s inancial statements: For the valuation of companies,
they require the inancial statements of the organization with that data applying
the techniques, so they need to adjust the inancial statements.
 Choosing the business valuation methods: next is what are the available valuation
methods in which method is suitable for the organization according to the size of
the organization.
 Applying the selected valuation methods: which is suitable for the organization
that we need to apply to the data to ind the business values.
 Reaching the business value conclusion: once we get the business value, we need
to analyze and conclude the organization’s business value.

What is the difference between debt and equity?

 Debt is the company’s liability, which must be paid off after a speci ic period.
Money raised by the company by issuing Equity shares to the public or investors,
which can be used for a long period, is known as Equity.
 Debt holders are outsiders, and equity holders are the company’s real owners.
 Debt is the borrowed fund, while Equity is the owned fund.
 Debt re lects money owed by the company towards another person or other
inancial institution, and Equity re lects the capital owned by the company.
 Debt can be kept for a limited or predetermined, or ixed duration period and
should be repaid after the expiry of that term. On the other hand, Equity can be
kept for a long period.
 Debt holders are the creditors, whereas equity holders are the owners of the
company.
 Debt carries low risk as compared to Equity, and when it comes to returning, it’s
vice versa.
 Debt can be in the form of term loans, debentures, and any other loans, but Equity
can be in the form of shares and stock only.
 Return on debt is known as interest. In contrast, the return on equity is called a
dividend.
 Return on debt is ixed and regular, but it is just the opposite in the case of return
on equity.
 Debt can be secured or unsecured, whereas equity is always unsecured.

What are the different types of derivatives?

A derivative is a contract between two or more parties whose value is based on an agreed-
upon underlying financial asset (like underlying assets) or set of assets. Common
underlying instruments include bonds, commodities, currencies, interest rates, market
indexes, and securities.

The four major types of derivatives are:

 Options
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 Forwards
 Futures, and
 Swaps.

When should a company buy back stock?

Companies buy back their stock mainly to create value for their shareholders. In this case,
value means a rising share price or paying the premium value for the share.

Reasons for buyback of stock

 Excess of cash low with the company

 From a tax perspective also, some companies will buy back shares from the
shareholders.
 Buyback of shares tends to improve the value of the companies
 Companies having signs that the stock is undervalued
 Redemption of shares.

Cost of debt or equity higher?

The cost of equity is always higher than the cost of debt for so many numbers of reasons.
One of the biggest factors to consider when focusing on debt and equity is that the cost of
borrowing with debt is tax-deductible because of its expenses for the company. Equity is
also more expensive because equity investors don’t always receive fixed dividends like a
borrower. Additionally, as per the Companies Act, in a firm’s financial structure, debt
receives a higher priority than equity in the case of bankruptcy or winding up of a firm.
Because of this, lenders will get their money first, with less risk associated with debt.

What is monetary policy?

A monetary policy is a governmental policy that controls the supply of money to the
country. Monetary policy plays a large role in the economy’s availability or flow of money.
The government’s monetary policy also affects the rupee value and the rate of interest on
it. When deciding what monetary policy to implementing, governments typically work
toward goals of stability and economic growth.

What is Underwriting, and what is its role?

Underwriting is a guarantee given by the underwriter that in the event of under

subscription, the amount underwritten would be subscribed by him. It is insurance to the
company which proposes to make a public offer against the risk of under subscription.

Roles of underwriting:

 The underwriter’s primary role is to purchase unsold securities from the company
and resell them to the public.
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 The underwriters take the risk that they will be able to resell the securities to the
public.
 Dissolution of the issue
 Risk diversi ication/risk minimization
 More research on market conditions and volatility of securities price.
 Act as a form of insurance for the company.

What are some key differences between commercial and investment banking?

Investment Bank

An Investment bank is a financial institution that assists individuals, corporations, and

governments in raising finance by underwriting and acts as the client’s agent in the
issuance of securities or both. An investment bank may also assist companies involved in
mergers and acquisitions and provide ancillary services such as trading of derivatives
and equity securities & FICC ( Fixed Income Clearing Corporation) services.

Major roles of investment banks are IPOs, investment management, Mergers &
acquisition, and other services.

Higher risk is involved in investment bankers.

Commercial Bank

The term commercial bank refers to a financial institution that accepts deposits and lends
money to the public, offers account services, makes various loans, and offers basic
financial products like debit cards, credit cards, locker facilities, and savings accounts to
individuals and small businesses.

Major functions of commercial banks are debit & credit card facilities, locker facilities,
loans, and other functions.

Less risk is involved in investment bankers.

Can you tell what a convertible bond is?

Convertible bonds refer to after a specific maturity period, and the bondholder has the
option of converting the bonds into common stock.

In other words, A convertible bond or convertible debt is a type of bond that the holder
can convert into a specified number of shares of common stock in the issuing company or
cash of equal value. It is a hybrid security with debt- and equity-like features.

What is the formula for calculating working capital?

Working capital refers to the difference between the organization’s current assets and
current liabilities. All organizations need to meet their daily expenses.
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The formula for calculation of working capital is Current assets minus current liabilities
or Short term assets minus short-term liabilities.

Current assets are Inventory, debtors, bills receivables, tradable securities, prepaid
expenses, cash, and bank balance.

Current liabilities are Short term debts, creditors, bills payable, bank overdrafts, and
outstanding expenses.

Explain Profitability Index (pi) /benefit Cost Ratio (b/c Ratio)?

The benefit-cost ratio (BCR) is a profitability indicator used in cost-benefit analysis to

determine the viability of cash flows generated from a project.

The Benefit Cost Ratio compares the present value of all benefits/cash flows generated
from a project to the present value of all costs.

The formula for Benefit cost ratio is the Present value of benefit expected from the project
/ Present value of the cost of the project.

What Are The Advantages And Limitations Of Credit Rating?

Credit rating refers to a measurable assessment of a borrower’s or company’s

creditworthiness or credit repayment capability in general terms or concerning a
particular debt, securities, or financial obligation. A credit rating can be assigned to any
entity that seeks to borrow money: an individual, a corporation, a state or provisional
authority, or from the government.

Advantages of Credit Rating

 Helps in investment decisions for investors or the public

 Easy to raise funds with the symbols of credit rating symbols
 It is the assurance of the safety of the investor’s fund
 Choice of securities/instruments according to the credit rating signs/symbols
 Rating builds the company securities value or market value of the security.
 Recognition of new companies

Disadvantages of Credit Rating

 Biased rating and misrepresentation

 Re lection of temporary or short-term inancial condition
 The current rate may change down the line
 Differences in rating different agencies
 The problem for new companies selling their securities
 Issuer and rating agencies relationship.

Listed vs. unlisted company

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Listed company:

 A listed company is registered on various recognized stock exchanges within or

outside the country, and its shares are freely traded on the stock exchanges.
 It has to follow guidelines given by SEBI
 Owned by many shareholders
 Highly liquid securities
 Volatility is very high
 Stock prices are easily available, which depends on the demand and supply forces.
Hence, the market value can be easily gathered.

Unlisted company:

 An unlisted company refers to a company that is not listed on the recognized stock
exchange, and its shares are not freely traded on the exchange.
 It has to follow guidelines given by Central Government
 Owned by private investors
 Not liquid securities
 Volatility is low
 Determination of market value is a bit dif icult. And the estimated or forecasted
market value can be calculated.

What Are The Eligibility Criteria For A Listed Company To Make a Public Issue?

A listed company is a public company. It has issued shares of its stock through an
exchange, with each share representing a sliver of ownership of the company.

Those shares can then be bought and sold by investors, rising or falling in value according
to demand. A company must apply to an exchange to be listed.

Eligibility criteria for a listed company to make a public issue are given below:

1. Paid up Capital

The paid-up equity capital of the applicant shall not be less than 10 crores, and the
capitalization of the applicant’s equity shall not be less than 25 crores. For this purpose,
the post-issue paid-up equity capital for which the listing is sought shall be taken into
account.

2. Conditions Precedent to Listing

The Issuer shall have adhered to conditions precedent to listing as emerging from inter-
alia from Securities Contracts (Regulations) Act 1956, Companies Act 1956/2013,
Securities and Exchange Board of India Act 1992, any rules and/or regulations framed
under foregoing statutes, as also any circular, clarifications, guidelines issued by the
appropriate authority under foregoing statutes.
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3. At Least three years track record of either

The applicant seeking listing; or The promoters/promoting company, incorporated in or

outside India or Partnership firm and subsequently converted into a Company (not in
existence as a Company for three years) and approaches the Exchange for listing. The
Company subsequently formed would be considered for listing only on fulfillment of
conditions stipulated by SEBI in this regard.

4. The applicant desirous of listing its securities should satisfy the exchange on
the following:

 Redressal Mechanism of Investor grievance

 Defaults in payment

What is money laundering?

Money laundering is a process that criminals use in an attempt to hide the illegal source
of their income. By passing money through complex transfers and transactions or a series
of businesses, the money is “cleaned” of its illegitimate origin and made to show as
legitimate/ethical business revenues/ incomes.

These are the three stages involved in money laundering:

 Placement
 Layering, and
 Integration

Basic HR Interview Questions

Introduce yourself or tell me about yourself — (name, an essential quality,

position)

This is one of the regular and commonly asked questions in any interview, whether a job
interview or any other circumstances. It’s essential to know about the candidate to the
interview panel members. Remember that with this question, you have the chance to set
the tone of your interview, connect with the highlights of your application, and introduce
the key points you want to communicate to the interviewer. The answer to this question
provides a kind of road map to the panel members, and the following questions should
build upon the narrative you establish with this answer.

Check out how to answer the “tell me about yourself” question.

What are your strengths?

Interviewers wish to see how honest you are about your capabilities and whether you are
confident about yourself. Tactfully answer this question highlighting the strengths of
your character as a professional. Like my biggest strength is that I am a dedicated
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professional for my role. Money isn’t the only driving factor that lures me towards a job.
I am keen on joining as a capital market consultant because I am passionate about
working in this sector. I am dedicated enough to direct my entire focus in learning and
gaining new experience every moment and make myself better at the job each day.”

Check out how to answer “what are your strengths” here.

Where do you see yourself after 5 to 10 years down the line?

Recruiters would like to see your plan, dedication, preparation toward the goal, and
ambition to decide whether you are a capable candidate who wishes to prosper. Inform
honestly how you plan to grow in your career and where you would like to reach in the 5
to 10 years down the line. You may talk about a senior level or a high job profile related
to the profession.

Five years or 10 years is a lot of time for me to try and update my skills in this particular
career I am interested in. I hope that with my dedication and 100% effort, I can easily
reach the position of my expectation.

What are the qualities required to be successful In Capital Market?

I trust that a person requires more than qualifications to work in the stock market or
capital market. Degrees are required because you must be qualified to grasp finance and
the stock market’s operational activities. However, a person must be well-known in the
stock market and have access to the most recent updates. To perfect the function of a
financial consultant or advisor, they must also have strong communication and
negotiation abilities. Furthermore, making informed decisions about the stock market’s
future and the risks and rewards of investment is critical.

Conclusion

In conclusion, preparing for a capital market interview can be a daunting task, but with
the right guidance and practice, you can increase your chances of success. Through this
blog, we have covered some of the top Capital Market Interview Questions that are
commonly asked by recruiters. By understanding these questions and preparing
thoughtful answers, you can showcase your knowledge, skills, and experience to impress
the interviewer. Remember to research the company, dress professionally, and practice
your interview skills beforehand to make a lasting impression. We hope that these tips
and questions help you ace your capital market interview and take the next step in your
career. Good luck!
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Frequently Asked Questions

What are the questions asked in the capital market interview?

You will be asked basic questions to start with, like what capital market means, its
significant elements, and the limitations of capital budgeting, before proceeding to the
advanced questions.

What are the basics of the capital market?

It is possible to buy and sell assets backed by long-term debt or equity in a capital market.
Capital markets direct individuals’ assets to organizations or governments that can invest
in them long-term.

What are the 3 capital markets?

The three popular Capital Markets are:

The Stock Market
The Bond Market
The Currency & Foreign Exchange Market

What is the role of capital markets?

Capital markets allow companies to raise money for expansion by allowing traders to
purchase and sell stocks and bonds. Since they have trustworthy markets where they can
receive money, businesses also have less risk and expenditure when acquiring financial
resources.

What is an example of a capital market?

There are many popular capital markets all over the world. New York Stock Exchange,
London Stock Exchange, NASDAQ, and more, to name a few.

What are the two types of capital markets?

There are two main types of capital markets—primary and secondary.

Primary Capital Market: Here, organizations, including businesses, governments, and
institutions serving the public interest, raise money by issuing bonds. Companies that
raise funds by selling new stocks through initial public offerings make up the primary
capital markets (IPO).
Secondary Capital Market: Customers can buy and sell financial and investment
products, including stocks, shares, and bonds, on the secondary capital market. The
trading and exchanging of current or previously issued securities is the primary
characteristic of a secondary capital market.
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What are the instruments of the capital market?

Instruments in Capital Market can be broadly divided into two types: Equity Security and
Debt Security. Equity security further includes equity and preference shares, and debt
security includes bonds and debentures.

What are the benefits of the capital market?

The capital market facilitates the movement of funds among several investors, including
those who lend and those who supply capital.

Secondary capital markets also support liquidity development.

Bonds and other financial instruments traded on the stock market offer investors higher
interest rates than shares and banks.

The liquidity of the instruments on the capital market allows for simple conversion into
cash.