Portfolio Management interview preparation

Questions

100

Traced to a firm

40

Firms

24

Updated

September 2026

Asked at

All firmsBLBlackRock4Vanguard4WMWellington Management4Amundi3ACAQR Capital Management3Neuberger Berman3SCSchroders3Man Group2MSCI2Northern Trust2AllianceBernstein1Apollo Global Management1Blackstone1BMBNY Mellon1Carlyle Group1Fidelity Investments1Goldman Sachs1Invesco1Millennium Management1MSMorgan Stanley1NUNuveen1PIMCO1SSState Street1TPTPG1

Topic

All topicsPortfolio theory5Factor models8Asset allocation11Rebalancing3Portfolio construction7Benchmarks and tracking error5Performance measurement8Risk management6Fixed income and LDI5Currency and global3Implementation and costs5Active versus passive6India markets7Brainteasers5Career and fit16

Level

AnyCoreIntermediateHard

Type

AnyTechnicalCaseMarket viewFitBrainteaser

1. 059Do you hedge currency in a global equity portfolio?Currency and globalIntermediatetechnicalMulti-assetGlobal equity

   Say this

   For equities, usually only partially or not at all. For bonds, almost always. The reason is the ratio of currency volatility to asset volatility: currency is a large share of the risk in a bond portfolio and a small share in an equity one, and it has no expected return to compensate you.

   Then walk it

   1. Run the numbers. Global equities have roughly 15 to 17 percent volatility and a major currency pair maybe 8 to 10 percent, and they are imperfectly correlated, so hedging changes total risk modestly. A global bond portfolio has 4 to 6 percent volatility, so unhedged currency is the dominant risk and hedging is close to compulsory.
   2. Currency has no long-run risk premium to speak of, so unhedged exposure is uncompensated volatility. That is the theoretical argument for hedging everything.
   3. The argument against hedging equities: some currencies are natural diversifiers. The dollar and the yen strengthen in risk-off episodes, so for a non-dollar investor, unhedged US equity exposure has a built-in stabiliser. Hedging removes it and can raise the drawdown.
   4. There is also a partial natural hedge inside the companies. A Swiss pharmaceutical or a Korean exporter has earnings in other currencies, so the listing currency overstates the true exposure. That argues against precision hedging at the index level.
   5. Then the practical costs: forward roll every one to three months, operational burden, and the cash flow risk. Hedging losses are settled in cash while the equity gain is unrealised, so a hedged programme can force you to fund large margin payments in a rally. That funding mismatch caught European investors hedged into US equities in 2014 and 2022.
   6. So my policy would be a strategic hedge ratio rather than a binary choice: fully hedge developed market bonds, hedge perhaps 50 percent of developed market equities as a regret-minimising middle, leave emerging market currency unhedged because the cost of carry is high and the currency is part of the asset, and size the liquidity buffer for hedge settlement.

   Where candidates lose it

   Answering 'hedge everything, currency is uncompensated risk' with no mention of the equity-versus-bond asymmetry or the cash flow consequences. Interviewers in global mandates want the volatility ratio argument, the safe-haven diversification point, and the awareness that hedges create funding calls. A 50 percent ratio as a stated regret-minimising policy is a strong answer.

   Expect next

   • Why hedge bonds but not equities?
   • What is the cash flow risk in a hedging programme?
   • Would you hedge emerging market currency exposure?
2. 060Why is the dollar so strong, and what does that do to a global portfolio?Currency and globalIntermediatetechnicalAmundiAsset Management · Milan · 2022

   Say this

   Three drivers, and you should name which one is dominant right now: a rate and growth differential in America's favour, safe-haven demand when risk appetite falls, and the dollar's structural role in funding and trade invoicing. The portfolio effect is that unhedged dollar assets flatter returns for a non-dollar investor and crush emerging market performance.

   Then walk it

   1. Driver one, real rate differentials. Capital flows to the higher real yield, so when the Fed is tighter than the ECB and the Bank of Japan, the dollar rises. Watch the two-year real yield gap as the cleanest single indicator.
   2. Driver two, the risk premium channel. The dollar is the reserve and funding currency, so in a stress event everyone needs dollars to service dollar liabilities and the currency rises exactly when risk assets fall. That is why it behaves as a hedge in a portfolio.
   3. Driver three, growth and terms of trade. Stronger relative US growth, plus energy independence during an energy shock, both support it. Europe in 2022 was importing expensive gas, which is a straightforward terms-of-trade hit to the euro.
   4. Portfolio effect one: for a euro or rupee-based investor, unhedged US equity returns get a currency tailwind, which flatters US allocations and disguises weak underlying performance. Strip the currency out before concluding that US equities beat everything.
   5. Portfolio effect two: a strong dollar is a tightening of global financial conditions. Emerging market sovereigns and corporates with dollar debt see their debt service rise in local terms, commodity importers suffer, and EM equity in dollar terms underperforms. So a dollar view is implicitly an EM allocation view.
   6. Then the mean-reversion caveat: purchasing power parity has almost no predictive power over one to three years but does over five to ten, so an extreme real effective exchange rate is a slow signal at best. I would treat it as a reason to hedge more of a new US allocation rather than as a trade in itself.

   Where candidates lose it

   Giving one reason, usually rate differentials, and no portfolio consequence. The question has two halves and the second is where the portfolio manager is being tested: the currency tailwind flattering US allocations, and dollar strength as a tightening of global conditions that hits emerging markets. Also know roughly where the dollar index and the rate differential are today.

   Expect next

   • So would you hedge your dollar exposure now?
   • What does dollar strength do to Indian equities and the rupee?
   • Does purchasing power parity help you at all?

   Reported by candidates at Amundi (Asset Management, Milan, 2022). Source: Wall Street Oasis.

3. 061What does it cost to hedge a currency, and where does that cost come from?Currency and globalIntermediatetechnicalMulti-assetGlobal investing

   Say this

   The cost is the interest rate differential, not a fee. Covered interest parity means the forward rate embeds the gap between the two countries' money market rates, so hedging a currency with a higher interest rate than yours costs you that gap every time you roll the forward.

   Then walk it

   1. Mechanism: the forward rate equals spot times the ratio of the two interest rates over the period. If dollar rates are 4 percent and euro rates are 2 percent, a euro investor hedging dollars pays away roughly 2 percent a year in forward points.
   2. So the hedging decision partly determines your return, not just your risk. An Indian investor hedging US equity exposure gives up the rupee-dollar rate differential, historically 3 to 5 percent a year, which is a very large share of an equity return to surrender for volatility reduction.
   3. It runs the other way too. A dollar investor hedging yen or euro exposure when their rates were near zero was collecting the differential, so hedging was a positive carry. That asymmetry explains why hedging norms differ by home currency.
   4. On top of the differential there is the real transaction cost: forward bid-offer, which is small for major pairs and material for emerging currencies, plus the operational cost of rolling and the credit or clearing cost of the derivative.
   5. Then the cross-currency basis, which is the deviation from covered interest parity. Since 2008, balance sheet constraints at banks mean hedging dollars can cost more than the rate differential implies, especially at quarter and year end. That basis was 30 to 50 basis points for the yen for long stretches and it is a real cost, not a theoretical one.
   6. And the cash flow point: forwards are marked and settled, so if the currency moves against the hedge you pay cash before the underlying gain is realised. A hedging policy needs a liquidity buffer sized for a two or three standard deviation currency move.

   Where candidates lose it

   Calling the hedge cost a fee or a premium. It is the interest rate differential, and being able to say that in terms of covered interest parity is the technical marker on this question. Then name the cross-currency basis, because that is the practitioner's detail that shows you have looked at an actual hedging cost sheet.

   Expect next

   • So does an Indian investor hedge US exposure?
   • What is the cross-currency basis and why does it exist?
   • How much liquidity would you hold behind a hedging programme?

Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.