Risk Management interview preparation

Questions

100

Traced to a firm

37

Firms

12

Updated

September 2026

Asked at

All firmsUBS14MSCI7BLBlackRock5FTFranklin Templeton3Oaktree Capital Management2Scotiabank2Jane Street1Moody's1Neuberger Berman1PIMCO1SSState Street1TSTruist Securities1

Topic

All topicsMarket risk and VaR14Tail risk and stress testing5Greeks and sensitivities5Credit risk11Counterparty risk and CVA6Operational risk5Model risk and validation6Regulatory capital7Liquidity risk and ALM6Statistics and quant foundations7Indian regulation7Risk governance and appetite4Markets and macro9Fit and career8

Level

AnyCoreIntermediateHard

Type

AnyTechnicalCaseBrainteaserMarket viewFit

1. 088What is an ETF, and how does it differ from a mutual fund?Markets and macroCorephone / first roundFTFranklin TempletonRisk Management · San Mateo · 2017PIMCOCompliance · Los Angeles · 2024

   Say this

   Both are pooled funds. The difference is the plumbing: an ETF trades on an exchange all day at a market price, and a mutual fund transacts once a day directly with the fund at net asset value. That one structural difference drives everything else.

   Then walk it

   1. The mechanism that keeps an ETF near fair value is creation and redemption. Authorised participants can exchange a basket of the underlying securities for ETF shares and back again, so if the ETF trades above NAV they create and sell, which arbitrages the premium away.
   2. Consequences of that: ETFs are usually cheaper, they're typically more tax-efficient because in-kind redemption avoids realising gains in the fund, they offer intraday liquidity, and they're transparent on holdings daily.
   3. Mutual funds in exchange get no intraday pricing, but they can take flows in cash, which suits regular investing, and in India the SIP model is built on exactly that.
   4. The risk-management points that matter, and this is where a risk interview goes. The arbitrage mechanism depends on the underlying being tradeable. For a bond ETF in a stressed market the ETF price becomes the price discovery mechanism and the NAV is the stale number, so an ETF trading at a discount is often telling you the truth about the underlying.
   5. Then liquidity mismatch risk: an ETF offering intraday liquidity on illiquid underlyings, high yield, emerging market debt, small caps, shifts the liquidity cost from the fund to the seller through the discount. That's arguably better than a mutual fund where redeeming investors impose costs on those who stay.
   6. Also securities lending revenue, counterparty risk in synthetic and swap-based ETFs, tracking difference against tracking error, and concentration risk in the authorised participant network, which is a small number of firms.
   7. Indian specifics: ETFs are a smaller share of the market than in the US, EPFO allocations have driven a lot of Nifty ETF assets, and liquidity in many Indian ETFs is thin enough that the bid-offer matters more than the expense ratio. That's a real point for an Indian investor and a real risk point too.

   Where candidates lose it

   Stopping at 'ETFs trade on an exchange'. That's the fact; the creation-redemption mechanism is the explanation, and it's what the follow-up will target. For a risk role, add the liquidity mismatch point, because bond ETFs in March 2020 are the case study the interviewer has in mind.

   Expect next

   • What keeps an ETF's price close to NAV?
   • Why did bond ETFs trade at discounts in March 2020?
   • What are the risks in a synthetic ETF?

   Reported by candidates at Franklin Templeton (Risk Management, San Mateo, 2017); PIMCO (Compliance, Los Angeles, 2024). Source: Wall Street Oasis.

2. 089Explain the difference between actively and passively managed funds, and where you come out.Markets and macroIntermediatetechnicalFTFranklin TempletonRisk Management · San Mateo · 2017

   Say this

   Passive replicates an index at low cost with low tracking error. Active tries to beat it and charges for trying. The arithmetic is brutal for active in aggregate, because active managers collectively hold the market, so before costs they earn the market return and after costs they underperform by roughly their fees.

   Then walk it

   1. That's Sharpe's arithmetic of active management and it's the strongest argument against active in aggregate. It's not an empirical claim, it's an identity.
   2. The evidence supports it: SPIVA data has consistently shown the large majority of active large-cap funds underperforming their benchmark over ten and fifteen year horizons, in the US and in most other markets, and persistence among the winners is weak.
   3. Where active has a better case: less efficient segments with less analyst coverage, small caps, emerging markets, distressed credit, where information is genuinely costly to acquire. And in asset classes where the index itself is a poor construct, like fixed income, where a market-cap-weighted bond index gives you more of whoever borrowed most.
   4. The Indian nuance is worth making because it cuts the other way for once. Indian large-cap active funds have increasingly struggled against the Nifty, which is why passive assets have grown fast there, but mid and small cap active has had a better record. And SEBI's total expense ratio caps and the move to direct plans cut the fee gap significantly.
   5. The risk-management angle: for passive you're managing tracking error, replication method, securities lending, and index concentration risk, which is real when a handful of names dominate an index. For active you're managing factor exposure, style drift, capacity, and whether the manager's realised risk matches their stated process.
   6. Where I come out, and I'd give a view because they asked: default to passive for efficient, liquid, well-covered markets, and pay for active only where you can articulate the specific inefficiency being harvested and check that the manager's tracking error is actually being spent on that. Paying active fees for closet indexing is the worst outcome of the three.
   7. And the measure that settles it: active share alongside tracking error. Low active share with active fees is the thing to refuse.

   Where candidates lose it

   Sitting on the fence. The interviewer asked you to compare, so a view is expected, and 'it depends' without a decision rule is a non-answer. Cite the arithmetic argument and one piece of real evidence, then give a conditional view with the condition stated.

   Expect next

   • Where does active management genuinely add value?
   • What is closet indexing and how would you detect it?
   • Has passive investing made markets less efficient?

   Reported by candidates at Franklin Templeton (Risk Management, San Mateo, 2017). Source: Wall Street Oasis.

3. 090Pitch me a stock.Markets and macroIntermediatetechnicalFTFranklin TempletonRisk Management · San Mateo · 2017

   Say this

   Lead with the recommendation, the target and the timeframe in one sentence, then give two or three reasons the market is wrong, then the risks and what would kill the thesis. For a risk role, the risk section is the part you're actually being marked on.

   Then walk it

   1. Structure: recommendation and price target, the variant view, two or three supporting arguments, valuation, the risks with a falsifier, and position sizing. Ninety seconds spoken, then answer questions.
   2. The variant view is the whole pitch. Why is this mispriced, and what do you believe that consensus doesn't? 'Good company, growing fast' isn't a pitch, because the market knows that and has priced it. Name the specific disagreement: a margin assumption, a market size, a capital allocation change, a cyclical trough being read as structural.
   3. Valuation has to be explicit and cross-checked. A multiple against the company's own history and against peers, plus a rough cash flow view, plus what's implied at the current price. Say what has to be true for the target to be right.
   4. Now the risk section, which is where a risk interviewer stops listening to the bull case. What kills the thesis, what's the downside in that case, how correlated is it to the rest of a portfolio, how liquid is the position, and what's the position size given the downside. That's the part most candidates skip entirely.
   5. Give a real falsifier with a date: 'if gross margin doesn't recover above 38 percent by the second quarter, the thesis is wrong and I'd exit'. Not 'if the macro deteriorates', which is unfalsifiable.
   6. Pick something you genuinely know, with a liquid, followable name, and be ready for three levels of follow-up: the business model, the numbers, and the bear case. Being unable to state the bear case well is the most common way this question fails.
   7. Practical preparation: have two long ideas and one short, one of them Indian if you're interviewing in India, and know each one's last two reported quarters. And be honest about what you don't know, because they will find the edge of your knowledge and how you behave there is the actual test.

   Where candidates lose it

   Pitching a famous company with a consensus story and no variant view. And skipping the risk section, which for a risk role is the part being assessed. If you can't state the bear case as well as a bear would, you haven't done the work and it shows in the first follow-up.

   Expect next

   • What's the bear case, argued properly?
   • What would make you exit?
   • How large a position would you take, and why that size?

   Reported by candidates at Franklin Templeton (Risk Management, San Mateo, 2017). Source: Wall Street Oasis.

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.