Risk Management interview preparation

Questions

100

Traced to a firm

37

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12

Updated

September 2026

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All firmsUBS14MSCI7BLBlackRock5FTFranklin Templeton3Oaktree Capital Management2Scotiabank2Jane Street1Moody's1Neuberger Berman1PIMCO1SSState Street1TSTruist Securities1

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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

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1. 036What is counterparty credit risk?Counterparty risk and CVACorephone / first roundScotiabankRisk · Toronto · 2025

   Say this

   It's the risk that the other side of a derivative or a securities financing trade defaults while the trade is in your favour. What makes it different from loan credit risk is that the exposure isn't a fixed amount: it's market-driven, two-sided, and it changes every day.

   Then walk it

   1. With a loan you know the exposure, it's the balance outstanding. With a swap, the exposure is the replacement cost, which can be zero today, in your favour tomorrow, and against you next week.
   2. That's why exposure has to be modelled rather than read off a ledger: current exposure is today's mark-to-market if positive, and potential future exposure is a high quantile of what it could become over the life of the trade.
   3. It's a hybrid of credit and market risk, which is why it sits awkwardly in bank org charts. You need a credit view on the counterparty and a market view on the exposure profile, and the interaction of the two is where the hard part lives.
   4. Mitigants in order of power: netting agreements under an ISMA or ISDA master, collateral and margin under a CSA, then central clearing, then break clauses and downgrade triggers.
   5. The specific flavour that catches people out is wrong-way risk, where the exposure grows precisely as the counterparty's credit deteriorates. That's not a diversifiable add-on, it's a fundamental change in the shape of the loss distribution.
   6. And the capital and pricing angle: CVA is the market price of this risk and it sits in the P&L. After 2008, Basel added a CVA capital charge because two-thirds of crisis counterparty losses were mark-to-market CVA losses rather than actual defaults.

   Where candidates lose it

   Describing it as 'credit risk on a derivative' and stopping. The distinguishing feature is that the exposure is stochastic and two-sided, and if you can't say that you can't explain why the discipline needs its own modelling. Name netting, collateral and wrong-way risk without being prompted.

   Expect next

   • How do you measure the exposure if it changes daily?
   • What is wrong-way risk?
   • Why does central clearing help, and what does it cost?

   Reported by candidates at Scotiabank (Risk, Toronto, 2025). 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.