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Derivatives

And 2nd fund accounting

In depth Knowledge required

Over-The-Counter Derivatives

The financial crisis of 2008 exposed significant weaknesses in the over-the-counter (OTC) derivatives
market, including the build-up of large counterparty exposures between market participants which were
not appropriately risk-managed; limited transparency concerning levels of activity in the market and
overall size of counterparty credit exposures; and remaining operational weaknesses which
demonstrated the need for further standardization and automation.

In 2009, the G20 Leaders agreed to reforms in the OTC derivatives market to achieve central clearing
and, where appropriate, exchange or electronic trading of standardized OTC derivatives; reporting of all
transactions to trade repositories; and higher capital as well as margin requirements for non-centrally
cleared transactions. These reforms are being implemented globally through legislative and regulatory
measures. Reforms in the U.S. are being carried out under the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act) and rulemakings by U.S. agencies, including the Commodity
Futures Trading Commission, Securities and Exchange Commission, as well as prudential regulators
including the Federal Reserve.

A resilient and well-functioning over-the-counter (OTC) derivatives market is an important component of

the financial markets and broader global economy. The OTC derivatives market:

Serves important economic purposes, such as enabling market participants to hedge exposures, invest
and manage risks; and

Is of systemic relevance due to the interconnectedness between financial institutions that are also active
in other key financial markets and market infrastructures.

The Federal Reserve Bank of New York (New York Fed) supports OTC derivatives reform efforts through
collaboration with domestic and international authorities. The New York Fed focuses on supervisory
matters relating to OTC derivatives processing and clearing, as well as policy and regulatory reform
efforts. It participates in international regulatory groups such as the OTC Derivatives Supervisors Group
(ODSG), the OTC Derivatives Working Group (ODWG), and workstreams led by standard-setting bodies
including Basel Committee on Banking Supervision, Committee on the Global Financial System,
Committee on Payment and Settlement Systems, and International Organization of Securities
Commissions.

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Curated by AmbitionBox

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Q7. What is CDS and tell details of other derivatives

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Q8. Find closest using binary search

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Q9. Derivatives markets and their products

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Is an MBS a derivative?

A good example of a derivative is the mortgaged-backed security ( MBS ), first issued in 1970 by the
Government National Mortgage Association (GNMA, or Ginnie Mae, as it is usually called), which is
created by the securitization of a pool of mortgages.

What is OTC and ETD?

The derivatives traded through centralised stock exchanges are known as Exchange Traded Derivatives
(ETDs). In contrast, those traded between two or more different parties without the involvement of stock
exchanges or any other formal intermediary are known as over-the-counter derivatives.

What is an example of an OTC derivative?

Examples of OTC derivatives include forwards, swaps, and exotic options, among others.

What is a listed derivative?

Listed Derivative means a derivative that is traded on a marketplace pursuant to standardized terms and
conditions set out by that marketplace and whose trades are cleared and settled by a clearing agency.

Why use MBS?

Why Do MBS (Mortgage-Backed Securities) Still Exist?

Improved Liquidity and Risk Argument

In this way, an MBS is a liquid product. Mortgage-backed securities also reduce risk to the bank.
Whenever a bank makes a mortgage loan, it assumes risk of non-payment (default). If it sells the loan, it
can transfer risk to the buyer, which is normally an investment bank.

How do I buy MBS?

Mortgage-backed securities can be purchased at most full-service brokerage firms and some discount
brokers. The minimum investment is typically $10,000; however, there are some MBS variations, such as
collateralized mortgage obligations (CMOs), that can be purchased for less than $5,000.

What is cash and securities reconciliation?

Cash Reconciliation is basically verifying balances as of any particular date against external parties.
Reconciliation process ensure each transactions is verified and validated accurately, hence ensuring right
impact on P&L and Balance sheet.

What is the difference between reconciliation and analysis?

Reconciliation compares two sets of data, for example the general ledger and subsidiary ledgers (such as
accounts receivable and accounts payable) or external data (such as bank and investment accounts);
while analysis includes the thorough review of the account of subsidiary ledger activity.

What does reconciliation mean in security?

The process of proving that an STO's books and records are accurate is commonly known as
reconciliation. From any perspective, reconciling positions and trades within internal books and records
with the outside world is paramount in ensuring that the STO remains in control of its assets and
liabilities.

What are the 5 types of reconciliation?

What is reconciliation in accounting? | GoCardless

Types of reconciliation

Bank reconciliation. ...

Vendor reconciliation. ...

Customer reconciliation.

Intercompany reconciliation. ...

Business specific reconciliation. ...

Accurate annual accounts must be maintained by all businesses. ...

Maintain good relationships with suppliers. ...

Avoid late payments and penalties from banks.

What is cash and securities?

Cash and Securities means all of the assets of Seller that are classified as “Cash & cash equivalents,”
“Marketable securities,” “Certificates of deposit – Short term,” “Certificates of deposit – Long term” and
“Deposits” on the balance sheet of Seller.

What is security and example?

Security means safety, as well as the measures taken to be safe or protected. In order to provide
adequate security for the parade, town officials often hire extra guards. A small child will sometimes
latch on to a blanket or stuffed animal that gives him or her the feeling of security.

*guys read and prepare what I am sharing - make your own notes- don't sit idle- give priorities to this.
and prepare well.* if you want to get placed in this company...

What is called a security?

: something that secures : protection. b(1) : measures taken to guard against espionage or sabotage,
crime, attack, or escape. (2) : an organization or department whose task is security.

What is the concept of bonus and split?

Both bonus and splits entail a small tweaking of your capital base. In case of bonus, the company issues
fresh shares to the existing shareholders by capitalizing the profits held in the free reserves of the
company. In case of stock split, just the par value (fair value) of the stock gets reduced proportionately.

What is rights issue in stock market?

Rights issues are an offer by a company to its shareholders to buy more of their stocks at a specific price
by a stipulated deadline. To attract interest, these are usually at discounted rates to the normal share
price.

What is dividend and split?

Difference between Stock Dividend and Stock Split - GeeksforGeeks

Generally, the dividend is provided by the company to its shareholders in two ways, either in cash or in
additional stock. Stock dividend is a distribution of additional shares of a company's stock to existing
shareholders whereas a stock split is done to divide the existing shares into multiple shares.

What are OTC equity products?

Over-the-Counter (OTC): Trading and Security Types Defined

Over-the-counter (OTC) securities are traded without being listed on an exchange. Securities that are
traded over-the-counter may be facilitated by a dealer or broker specializing in OTC markets. OTC trading
helps promote equity and financial instruments that would otherwise be unavailable to investors.

What is OTC derivatives IRS?

16.1 DEFINITION. An interest rate swap (IRS) is an OTC derivative contract in which two parties
periodically exchange interest payments of different types, on a specified notional principal, during a set
period of time. IRS are part of a family of financial products known as interest rate derivatives.

What are the six types of OTC derivatives?

Types of OTC Derivatives

Interest Rate Derivatives: Here, the underlying asset is a standard interest rate. ...
Commodity Derivatives: Commodity derivatives have underlying assets that are physical commodities
such as gold, food grains etc. ...

Equity Derivatives: ...

Forex Derivatives: ...

Fixed Income Derivatives: ...

Credit Derivatives:

What is counterparty risk to prime brokers?

The scope of a fund's counterparty risk to prime brokers is a complex assessment that incorporates an
understanding of the absolute return fund's investment strategy and operations within its ecosystem
(counterparties, the specific agreements, and jurisdiction).

What is a prime of prime brokerage?

What Is Prime of Prime (PoP)? Prime of Prime, or PoP, is a firm that provides a retail broker (often forex
brokers) with access to the trading liquidity pool of the bigger banks. These big banks are referred to as
tier 1 banks, and not just anyone can trade directly with them.

What are the two types of counterparty risk?

Counterparty credit risk comes in two forms: pre-settlement risk and settlement risk.

What is an example of a counterparty?

Counterparties are those parties that are a part of a monetary transaction. Each transaction will have a
counterparty without which the transaction can not go through. For example, a purchaser of an asset
will be up against the seller who is looking to sell his asset, the vice verse as well holds good.

*Fund accounting* is an accounting system for recording resources whose use has been limited by the
donor, grant authority, governing agency, or other individuals or organisations or by law. It emphasizes
accountability rather than profitability, and is used by Nonprofit organizations and by governments.

*What are the three types of fund accounting?*

The generally accepted accounting principles (GAAP) basis classification divides funds into three broad
fund categories: Governmental, Proprietary, and Fiduciary.

*What is a fund based accounting?*

Fund based accounting is used in Non-Profit concerns to record transactions related to certain items. In
such cases a fund is created in the books of accounts & all the revenues related to that item, for which
we have created a fund, are added to the fund and all the related expenses are subtracted from the
fund.
*What is the difference between fund accounting and accounting?*

General accounting vs fund accounting

General accounting standards involve recording all income flowing into a business and all expenses in the
general ledger. Fund accounting comprises the general ledger, investment holdings, and capital
allocations.

*What is the formula for NAV?*

To calculate NAV, the overall expense ratio is subtracted from the asset value. To standardize the value of
assets to every unit, this value is then divided by the total number of outstanding units to yield the net
asset value.

*What is the role of a fund accountant?*

A fund accountant is responsible for preparing consolidated accounts and investor reporting for
investment funds, such as real estate, debt, or private equity. In some cases, fund accountants are tasked
with reviewing work prepared by the fund administrator before the main fund accounting is outsourced.

*What is the full form of SIP?*

A Systematic Investment Plan (SIP), more popularly known as SIP, is a facility offered by mutual funds to
the investors to invest in a disciplined manner. SIP facility allows an investor to invest a fixed amount of
money at pre-defined intervals in the selected mutual fund scheme.

*Is SIP an FD?*

SIP vs FD - Which is a better option for investment?

SIP or Systemic Investment Plan is a kind of investment for mutual funds for you to deposit a little
amount of money in installments. FD or Fixed Deposit is another investment option for people to deposit
an amount for a pre-determined term to get to withdraw it with interest on its maturity.

*Is SIP tax free?*

SIP Tax Benefit

SIP under Equity Linked Saving Schemes (ELSS) comes under the EEE (Exempt, Exempt, Exempt) category.
This means, the amount invested, the amount on maturity and the withdrawal amount all are tax-free.
With SIP in ELSS fund, one can claim a deduction of up to Rs. 1,50,000 per year.

*What is SIP tenure?*

Systematic Investment Plan - Meaning, Types, Benefits, How It ...

A perpetual SIP Plan allows you to carry on the investments without an end to the mandate date.
Generally, an SIP carries an end date after 1 Year, 3 Years or 5 years of investment. The investor can
hence withdraw the amount invested whenever he wishes or as per his financial goals.

*What is NAV in financials?*

"Net asset value," or "NAV," of an investment company is the company's total assets minus its total
liabilities. For example, if an investment company has securities and other assets worth $100 million and
has liabilities of $10 million, the investment company's NAV will be $90 million.

*Is it good if NAV is high?*

A fund with a high NAV is considered expensive and wrongly perceived to provide a low return on your
investments. Instead, you tend to pick mutual funds with a low NAV. That's because you believe that
more MF units would translate into higher earnings.

Examples of Entities Using Fund Accounting

Examples of the types of entities that may use fund accounting are artistic foundations, charities,
churches, colleges and universities, governments, hospitals, nursing homes, and orphanages.

Governmental Funds

The governmental fund is the default fund to be used to account for all activities of a government,
except for those required to be accounted for in a different fund. Thus, the governmental fund is a
government’s primary operating fund. The governmental fund category includes the following funds:
Capital projects funds. Used to account for financial resources that have been set aside for capital
outlays (usually major outlays).

Debt service funds. Used to account for financial resources that have been set aside to pay for principal
and interest.

General fund. Used to account for all financial resources not being reported in any other fund.

Permanent funds. Used to account for financial resources for which only the earnings can be used for the
support of government programs.

Special revenue funds. Used to account for the proceeds from targeted revenue sources for which there
is a commitment for expenditures other than capital projects or debt service.

Proprietary Funds

Proprietary funds are used to account for the business-type activities of a government. The proprietary
funds category includes the following funds:

Enterprise funds. These funds are used to account for any activity for which external users are charged a
fee for goods and services, even when the government subsidizes a portion of the activity’s costs.

Internal service funds. These funds are used to account for activities that provide goods or services to
other funds, as well as departments or agencies of the primary government, or to other government
entities on a cost-reimbursement basis.

Fiduciary Funds

Fiduciary funds are used to report on assets held in trust for the benefit of organizations or other
governments that are not part of the reporting entity. The fiduciary funds category includes the
following funds:

Agency (custodial) funds. Used to report on resources held in a custodial capacity, where funds are
received, temporarily invested, and remitted to other parties.
Investment trust funds. Used to report the external portion of an investment pool that is reported by the
sponsoring government.

Pension and employee benefit trust funds. Used to report on assets held in trust for pension plans, other
postemployment benefit plans, and employee benefit plans.

Private-purpose trust funds. Used to report on trust arrangements where individuals, private
organizations, and other governments are the beneficiaries.

*Interview questions* samples

1. What makes you the right person for this job?

This is a typical question, and recruiters ask it to understand your educational and professional
background and determine if you are the right fit for the job. They may also want to assess your
reflective and critical thinking skills based on how you frame your thoughts into a desirable answer.
When answering this question, consider sharing any accounting specific qualifications or experiences
that make you equipped for this job role.

Example answer: "Right after high school, I enrolled in a bachelor's degree programme in accounting that
focused on business management. My coursework and practical exposure through internships at various
financial management firms have enhanced my critical thinking, attention and organisational skills. As a
result, I became more punctual and skilled in my role. I started working as a fund accountant for
Wavewood during this time. My job required me to manage daily fund structures, update the accounting
system and assist in internal audit practices. My other responsibilities included reviewing and
coordinating the fund expense analysis and expense processing.

While working with this firm, I also enrolled in a distance learning program to pursue my master's in
business administration with a specialisation in accounting. After two years, I received my master's
degree, and I also completed a certificate program in finance management to further improve my
understanding of company funds and their management. Currently, I am pursuing another certification
in hedge funds to learn their investment practices and enhance my risk management abilities."

Related: What Is Asset Management? (With Career Options)

2. Which financial statement would you analyse to give recommendations to a company?

Employers can ask you this question to assess your decision-making, prioritisation and risk management
skills. They may also want to determine if you have experience analysing financial statements and
whether you can make the right financial recommendations based on your understanding that can help
the company make a profit. When answering this question, try being honest about the approaches you
usually use and highlighting any specific statement you would analyse to maximise company profits.

Example answer: "There are many financial reports, statements and documents that I usually analyse to
evaluate a company's economic progress, identify the shortcomings and suggest the fund management
strategy. But, from my professional experience with many of these practices and procedures, I have
found that the cash flow statement is often the first and most important financial statement to analyse a
company's financial health. Once I review this document, I have a clear idea of what steps I can take and
what strategies to implement for bringing in more profit.

This statement can also help me assess the existing and incoming funds, which provide insight into what
to expect from the revenue and how much funds are for company expenses. With these insights and
information, I can suggest practical ways to manage and project the company's revenue and profits. This
understanding also helps establish procedures and objectives that can further support the company's
continuous growth and help me scale the business's economic side."

Related: What Is Financial Modelling? (With Benefits And Types)

3. How would you differentiate between the accounts receivable and the deferred payments?

Employers may ask you this question to determine if you have the relevant financial knowledge and
understanding to perform your duties as a fund accountant. They may also want to assess if you can
effectively analyse the client payments and financial transactions to help support the business's financial
goals. When answering this question, consider highlighting the relevant characteristics of each of these
concepts. Also, describe how you collaborate with receivable teams and document transactions in the
accounting records.

Example answer: "One way I differentiate between the accounts receivable and deferred payments is by
ensuring constant communication with the relevant departments, in this case, the accounts receivable
department. I explain the situation to them and seek the required financial reports alongside collecting
all other necessary documents to perform the evaluation process. Once I access all the relevant financial
documents, I can assess the receivable accounts and look for prepayments that I will further mark as
deferred revenue. After this, I usually record the outstanding payments in the account receivable reports
to make it easily accessible to all relevant professionals."
Related: What Is Revenue? Definition, Types, Examples And More

4. When would you capitalise on the company's purchases?

Interviewers can ask you this question to assess your fund management skills and determine if you are
proficient in allocating revenue and expense budgets. They may also want to understand your expertise
in managing company spending accounts. When answering this question, try being specific and consider
sharing examples from your personal experience that demonstrate your industry knowledge and the
ability to follow documentation practices.

Example answer: "While there are many methods to capitalise on the company's purchases, one of my
most frequently used ways is to analyse the expected lifetime use of the purchase. During the
assessment process, whenever a purchase has an expected lifetime use for over a year, in those cases, I
consider capitalising on this value. This process also accounts for the depreciation in the value of assets,
which I typically advise the professionals to carry over, as it can be helpful for deductions when
preparing taxes."

5. Explain a budgeting method you used in your previous job.

A hiring manager can ask you this question to evaluate your level of theoretical and practical
understanding of the budgeting methods and determine if you have the right skills for the job role. They
may also want to assess your accounting, project management and organisational skills. When
answering this question, consider discussing the budgeting method you are most familiar with and its
advantages to show your range of expertise.

Example answer: "With my previous job as a fund accountant at Wavewood, I primarily worked with the
incremental budgeting method to allocate the company funds better. Since this is a traditional budgeting
method, I was more comfortable preparing the budget using the current period's budget or our
company's actual performance as a base value and then adding incremental amounts for the new
budget period.

I particularly liked the accuracy that this method offers to the fund accountant, as it enabled me to
access the financial performance for each accounting period. It equipped me to analyse growth and
predict future performance. However, whenever I assess the department and team budgets, I prefer to
get a general idea of what to expect using the zero-based method. This way, I can allocate funds
according to the necessity and efficiency of the company's cash flows."

6. What strategies do you follow to evaluate a company's net assets?

Interviewers can ask this question to test your analytical, prioritisation and management skills. Through
this question, they may want to determine if you can apply your accounting knowledge to practical
situations, analyse budgets, document various financial transactions and create funding projections or
reports. When answering this question, consider sharing any specific strategy you follow when
evaluating the net value of a company or share examples of financial computations you use to record
assets and revenue.

Example: "To evaluate a company's net assets, first, I would examine the company's total asset value and
deduct all potential liabilities from this total value. Once I get this, I now have access to the gross asset
value of both the company's short- and long-term assets. After this, I divide the value attained by the
number of outstanding shares that the company offers in payable dividends. I can get the resultant net
asset value from this calculation, which helps me efficiently allocate and manage excess funds."

Related: Gross Salary And Net Salary: Definitions And Examples

7. How would your previous employer describe you?

Employers can ask you this general question to assess your personality beyond your qualifications and
determine if you are the right fit for the company's values and culture. They may also want to know
about your strengths and weaknesses and test your honesty when asking questions like this. When
answering, be authentic in sharing a truthful answer to impress the interviewer.

Example answer: "While I made a lot of accounting mistakes in my first job, one thing I can say is that I
am a curious person, and I am willing to correct my errors. I realised this when my previous employer
told me I never gave up and was always willing to improve myself and work on growing my skills and
expertise, despite my shortcomings. During one of our annual meetings, my former boss also
appreciated how I conducted financial presentations punctually and acknowledged the improvement in
my organisational and accounting skills."

1) What is hedge fund? 2) What is IRR and formula? 3) Journal entry for Accrual and Prepaid?

Fund Accountant interview questions on hedge funds, IRR formula, and journal entries for accrual and
prepaid.

Hedge fund is an investment fund that pools capital from accredited individuals or institutional investors
and invests in a variety of assets.

IRR (Internal Rate of Return) is a metric used to measure the profitability of an investment. Formula: NPV
= 0 = CF0 + CF1 / (1 + IRR) + CF2 / (1 + IRR)^2 + ... + CFn / (1 + IRR)^n
Journal entry for accrual: Debit expense account, credit accrued liability account. Journal entry for
prepaid: Debit prepaid asset account, credit cash account.

4) What is retained earnings? 5) What is capitalization of interest ?

Retained earnings are the portion of a company's profits that are kept by the company instead of being
distributed as dividends.

Retained earnings are a measure of a company's financial health and its ability to reinvest in itself.

They are calculated by subtracting dividends paid to shareholders from the company's net income.

Retained earnings can be used for various purposes such as research and development, debt reduction,
or expansion.

If a company has negative retained earnings, it means it has accumulated losses over time.

Retained earnings are reported on the balance sheet under shareholder's equity.

What are the journal entries for fund accounting?

Some practical examples of Fund Administration journal entries

Bank Fee expense payment: Dr: Bank Fee expense (Expense) Cr: Cash (Asset)

Subscription: Dr: Cash (Asset) Cr: Contributions (Equity)

Interest receipt: Dr: Cash (Asset) Cr: Interest receipt (Revenue)

Clawback provision

The term clawback can also be found in some other settings. In private equity, it refers to the limited
partners' right to reclaim part of the general partners' carried interest, in cases where subsequent losses
mean the general partners received excess compensation.

Derivatives are an essential financial instrument that get their value from other fundamental variables. If
you're pursuing a career in finance, employers may expect you to be familiar with derivatives and their
purpose. Reviewing possible interview questions about these financial instruments may help you
understand why interviewers ask about them and prepare to provide your own answers. In this article,
we discuss examples of derivatives interview questions, provide example answers and offer tips for
success.

1. What are derivatives?

A hiring manager may ask you to define derivatives to assess your general knowledge. Provide a clear
answer that demonstrates your understanding of the topic. Consider including an example that supports
your statement.

Example answer: "Derivatives are an essential financial instrument. They're considered a financial
contract, and they drive their value from the underlying spot price. For example, a coffee shop owner
may enter a contract with their supplier regarding the price of coffee beans to avoid the risk of prices
changing before the owner needs the beans. This contract exists through a forward or futures market,
which is part of the derivatives market."

2. When is a forward contract useful?

A hiring manager may ask about forward contracts to evaluate your understanding of the different types
of contracts. Your response may also demonstrate your thought process and decision-making skills,
influencing the choices you'd make on behalf of the company or recommendations you'd give to your
clients. Start your answer by defining what a forward contract is, then explain scenarios in which it's
useful.

Example answer: "A forward contract involves two parties agreeing to do a future date for a specific
quantity and price. While the parties agree on the terms, they don't exchange any goods or funds until
the agreed-upon date. This type of contract may be useful when speculation potential prices. For
example, if you have information that indicates prices for a certain good may increase in the future, you
may benefit from using a forward contract to secure the current, more affordable price for your future
exchange."

3. What are some common problems that affect forward markets?

A hiring manager may ask you about problems that affect forward markets to evaluate how well you
understand the different types of markets. Understanding the risks to certain markets may help you
make better financial decisions. Provide some problems affiliated with forward markets and consider
sharing how you combat the issues.

Example answer: "A few problems that may affect forward markets include illiquidity and the lack of
centralization of trading. However, I feel like one of the biggest problems related to forward markets is
how long some forward contracts are open. When forward contracts are open longer, this leaves more
room for prices to change, potentially increasing and leading to bad deals. To avoid this, I ensure I do
thorough research into pricing trends and strive to make reasonably short forward contracts."

4. When should someone trade in derivatives?

A hiring manager may ask you about when or why someone should trade in derivatives to assess your
decision-making skills. Your answer may indicate the type of recommendations you'd give to a client or
decisions you'd make on behalf of the company. Provide an answer that discusses trading in futures and
options.

Example answer: "If you're interested in futures trading, it may be beneficial if you're interested in
investing, concerned about hedging or looking to leverage your activities to make a higher profit. Options
trading may be beneficial if you're hoping to protect your portfolio through a smaller premium payment
and want to participate in the market without a large quantity of stock or trading. However, both may be
beneficial if you're concerned about liquidity, transaction costs and making profits with reduced amounts
of risk capital."

Related: 33 Interview Questions for Traders (With Example Answers)

5. Define what the expiration day is.

A hiring manager may ask this question to ensure you're familiar with basic financial concepts. Provide
the definition for an expiration date. Consider providing any important caveats that may affect when an
expiration date is.

Example answer: "The expiration date refers to the day that a contract expires. Futures and options
contracts, for example, expire on the last Thursday of the expiration month. For example, if a contract
expires in February 2022, and February 28 is a Friday, then Thursday, February 27 is the expiration day.

However, it's important to remember holidays may affect expiration dates. In the event of a nontrading
day or another holiday, the expiration day falls on the previous trading day. For example, if the expiration
day falls on Thanksgiving, the expiration date moves to the Wednesday before Thanksgiving."

6. Regarding options, can you tell me the difference between at the money, in the money and out of the
money?
A hiring manager may ask you to compare the differences among at-the-money, in-the-money and out-
of-the-money to determine your understanding of the different types of options. Your response may
indicate your knowledge of options and how they affect cash flow. Define each term and consider
including an example of each type of option.

Example answer: "An at-the-money option is an option that, if exercised immediately, would lead to zero
cash flow. This may occur if an option's current price equals its strike price. An out-of-the-money option
is an option that, if exercised immediately, would create a negative cash flow. A call option may be out of
the money if its current price is less than the strike price, but a put option may be out of the money if its
current price is above the strike price.

However, an in-the-money option is an option that, if the holder exercised it immediately, would create a
positive cash flow. A call option may be in the money if its current price is greater than its strike price.
However, a put option may be in the money if its spot price is less than its strike price."

7. What's the process for settling contracts?

A hiring manager may use this question to evaluate your understanding of working with contracts. Your
response may help them envision you completing day-to-day tasks within the role. Explain the process
for settling contracts and consider including a personal example of when you've previously settled a
contract.

Example answer: "It's important to settle all futures and options contracts in cash daily. Similarly, it's
essential to settle all contracts prior to or at the expiration date. This is because the money or money
options in the contract may expire to become worthless on the expiration date."

8. Define implied volatility.

A hiring manager may ask about implied volatility to see if you understand the concept and what it
means. Your response may help them evaluate your understanding of evaluating the market. Provide an
answer that defines the term and consider qualifying your response with a nontechnical comparison.

Example answer: "Implied volatility is the volatility built into an option's actual dollar price. It's important
to determine the actual volatility rather than using a volatility assumption. To do so, you should look at
trading in the market to figure out what volatility it likely has to achieve its market price."

9. Describe what skew refers to.

A hiring manager may ask you to define skew to evaluate your knowledge of jargon related to
derivatives. It's important for you to understand the unique language of derivatives and to be able to
explain what the terms mean. Define skew and consider discussing why it matters.

Example answer: "Skew refers to how options may have a variety of strike prices and expiration dates.
For example, you're looking at differences in volatility for options that are at the money, in the money
and out of the money, but they all have the same expiration date. This indicates each of the options has
a different strike price."

10. Compare the difference between futures and forward contracts.

A hiring manager may ask you to compare futures and forward contracts to learn more about your
understanding of the types of contracts. Highlight the primary differences between the types of
contracts and how this affects your work. You may also consider beginning your answer by defining each
contract type, but that's optional.

Example answer: "The most significant difference between futures and forward contracts is how you can
trade them. You trade forwards contracts over the counter, but you trade futures contracts on
exchanges. As a result, you can only trade specific futures contracts on exchange. Forward contracts,
however, provide more flexibility because they're negotiated privately, may represent assets and may
change settlement dates if both parties involved agree."

11. Why is it important to consider interest rates when determining the price of options?

A hiring manager may ask you about how interest rates affect options to assess your technical abilities.
Your answer may indicate your understanding of how your actions and decisions affect one another.
Explain how interest rates impact the prices of options and consider sharing an example to support your
answer.

Example answer: "When determining the price of options, it's essential to consider interest rates. This is
because higher interest rates typically lower the value of call options if all else is equal. This is a result of
the net present value concept."

*guys you will have interview - so prepare on given JD*

Derivatives are an essential financial instrument that get their value from other fundamental variables. If
you're pursuing a career in finance, employers may expect you to be familiar with derivatives and their
purpose. Reviewing possible interview questions about these financial instruments may help you
understand why interviewers ask about them and prepare to provide your own answers. In this article,
we discuss examples of derivatives interview questions, provide example answers and offer tips for
success.

1. What are derivatives?

A hiring manager may ask you to define derivatives to assess your general knowledge. Provide a clear
answer that demonstrates your understanding of the topic. Consider including an example that supports
your statement.

Example answer: "Derivatives are an essential financial instrument. They're considered a financial
contract, and they drive their value from the underlying spot price. For example, a coffee shop owner
may enter a contract with their supplier regarding the price of coffee beans to avoid the risk of prices
changing before the owner needs the beans. This contract exists through a forward or futures market,
which is part of the derivatives market."

2. When is a forward contract useful?

A hiring manager may ask about forward contracts to evaluate your understanding of the different types
of contracts. Your response may also demonstrate your thought process and decision-making skills,
influencing the choices you'd make on behalf of the company or recommendations you'd give to your
clients. Start your answer by defining what a forward contract is, then explain scenarios in which it's
useful.

Example answer: "A forward contract involves two parties agreeing to do a future date for a specific
quantity and price. While the parties agree on the terms, they don't exchange any goods or funds until
the agreed-upon date. This type of contract may be useful when speculation potential prices. For
example, if you have information that indicates prices for a certain good may increase in the future, you
may benefit from using a forward contract to secure the current, more affordable price for your future
exchange."

3. What are some common problems that affect forward markets?

A hiring manager may ask you about problems that affect forward markets to evaluate how well you
understand the different types of markets. Understanding the risks to certain markets may help you
make better financial decisions. Provide some problems affiliated with forward markets and consider
sharing how you combat the issues.

Example answer: "A few problems that may affect forward markets include illiquidity and the lack of
centralization of trading. However, I feel like one of the biggest problems related to forward markets is
how long some forward contracts are open. When forward contracts are open longer, this leaves more
room for prices to change, potentially increasing and leading to bad deals. To avoid this, I ensure I do
thorough research into pricing trends and strive to make reasonably short forward contracts."

4. When should someone trade in derivatives?

A hiring manager may ask you about when or why someone should trade in derivatives to assess your
decision-making skills. Your answer may indicate the type of recommendations you'd give to a client or
decisions you'd make on behalf of the company. Provide an answer that discusses trading in futures and
options.

Example answer: "If you're interested in futures trading, it may be beneficial if you're interested in
investing, concerned about hedging or looking to leverage your activities to make a higher profit. Options
trading may be beneficial if you're hoping to protect your portfolio through a smaller premium payment
and want to participate in the market without a large quantity of stock or trading. However, both may be
beneficial if you're concerned about liquidity, transaction costs and making profits with reduced amounts
of risk capital."

Related: 33 Interview Questions for Traders (With Example Answers)

5. Define what the expiration day is.

A hiring manager may ask this question to ensure you're familiar with basic financial concepts. Provide
the definition for an expiration date. Consider providing any important caveats that may affect when an
expiration date is.

Example answer: "The expiration date refers to the day that a contract expires. Futures and options
contracts, for example, expire on the last Thursday of the expiration month. For example, if a contract
expires in February 2022, and February 28 is a Friday, then Thursday, February 27 is the expiration day.

However, it's important to remember holidays may affect expiration dates. In the event of a nontrading
day or another holiday, the expiration day falls on the previous trading day. For example, if the expiration
day falls on Thanksgiving, the expiration date moves to the Wednesday before Thanksgiving."

6. Regarding options, can you tell me the difference between at the money, in the money and out of the
money?
A hiring manager may ask you to compare the differences among at-the-money, in-the-money and out-
of-the-money to determine your understanding of the different types of options. Your response may
indicate your knowledge of options and how they affect cash flow. Define each term and consider
including an example of each type of option.

Example answer: "An at-the-money option is an option that, if exercised immediately, would lead to zero
cash flow. This may occur if an option's current price equals its strike price. An out-of-the-money option
is an option that, if exercised immediately, would create a negative cash flow. A call option may be out of
the money if its current price is less than the strike price, but a put option may be out of the money if its
current price is above the strike price.

However, an in-the-money option is an option that, if the holder exercised it immediately, would create a
positive cash flow. A call option may be in the money if its current price is greater than its strike price.
However, a put option may be in the money if its spot price is less than its strike price."

7. What's the process for settling contracts?

A hiring manager may use this question to evaluate your understanding of working with contracts. Your
response may help them envision you completing day-to-day tasks within the role. Explain the process
for settling contracts and consider including a personal example of when you've previously settled a
contract.

Example answer: "It's important to settle all futures and options contracts in cash daily. Similarly, it's
essential to settle all contracts prior to or at the expiration date. This is because the money or money
options in the contract may expire to become worthless on the expiration date."

8. Define implied volatility.

A hiring manager may ask about implied volatility to see if you understand the concept and what it
means. Your response may help them evaluate your understanding of evaluating the market. Provide an
answer that defines the term and consider qualifying your response with a nontechnical comparison.

Example answer: "Implied volatility is the volatility built into an option's actual dollar price. It's important
to determine the actual volatility rather than using a volatility assumption. To do so, you should look at
trading in the market to figure out what volatility it likely has to achieve its market price."

9. Describe what skew refers to.

A hiring manager may ask you to define skew to evaluate your knowledge of jargon related to
derivatives. It's important for you to understand the unique language of derivatives and to be able to
explain what the terms mean. Define skew and consider discussing why it matters.

Example answer: "Skew refers to how options may have a variety of strike prices and expiration dates.
For example, you're looking at differences in volatility for options that are at the money, in the money
and out of the money, but they all have the same expiration date. This indicates each of the options has
a different strike price."

10. Compare the difference between futures and forward contracts.

A hiring manager may ask you to compare futures and forward contracts to learn more about your
understanding of the types of contracts. Highlight the primary differences between the types of
contracts and how this affects your work. You may also consider beginning your answer by defining each
contract type, but that's optional.

Example answer: "The most significant difference between futures and forward contracts is how you can
trade them. You trade forwards contracts over the counter, but you trade futures contracts on
exchanges. As a result, you can only trade specific futures contracts on exchange. Forward contracts,
however, provide more flexibility because they're negotiated privately, may represent assets and may
change settlement dates if both parties involved agree."

11. Why is it important to consider interest rates when determining the price of options?

A hiring manager may ask you about how interest rates affect options to assess your technical abilities.
Your answer may indicate your understanding of how your actions and decisions affect one another.
Explain how interest rates impact the prices of options and consider sharing an example to support your
answer.

Example answer: "When determining the price of options, it's essential to consider interest rates. This is
because higher interest rates typically lower the value of call options if all else is equal. This is a result of
the net present value concept."

*this is last chance now for preparation* if you make your self ready with all .....

*without preparations on derivative and fund accounting you will not able to give ans in the interview*
so prepare well....don't sit only ---- read more- make notes now- this the time....now..

You're invited to a Teams meeting!

SSC Tech

https://teams.live.com/meet/9583431683537?p=zKLHBdyJuwaeK6we

Tap on the link or paste it in a browser to join.

Dear Students,

Join the link tomorrow 9:55 AM for Grooming

It's an golden opportunity prepare well in advance.

Guys you will have interview any time....so be prepared first....

*The interview procedure will consist of an Aptitude Test followed by HR and Technical round of
interview*

Do share resumes and list of interested candidates in attached format

*Job Title – Associate*

*Job Location: 201, 2nd Floor, Building No 7, Commerzone Building, Yerwada , Pune - 411006*

*Work shift - UK Shift / APAC*

*CTC – 400,000 + Variable pay*

*About us*

*SS&C is a leading global* provider of mission-critical, cloud-based software and solutions for the
financial and healthcare industries. Named to the Fortune 1000 list as a top U.S. company based on
revenue, SS&C (NASDAQ: SSNC) is a trusted provider to more than 18,000 financial services and
healthcare companies, with over 24,000 employees and operations in 104 cities across 40 countries.
Built upon a foundation of expertise, innovation and excellent customer service, SS&C powers some of
the largest financial and healthcare firms in the world.

Hedge Funds, Fund of funds, Managed services, Pension funds, OTC services, Corporate treasuries, Risk
services, Cash Management, Valuation control, Private Equity, and Financial Technology
Website - http://www.ssctech.com

*Job Description:*

*Operations/ OTC Derivatives:*

· Daily reconciliation of Cash, positions and transactions for Equity, Corporate Bond, MBS,
Derivatives (OTC & Listed), Repo, Bank Loan, and private securities.

· Analyze and understand all security & cash position differences related to reconciliations.

· Coordinate break resolution process with Client, Prime brokers, Counterparty and internal
departments.

· Tracking corporate actions (i.e. rights, bonuses, splits, amalgamations, dividends etc.)

· Handling reconciliation of various OTC products such as CDS, IRS, Equity & Bonds – medium to
complex

· Matching of Trade Economics between Client Data and Prime Brokers/Counterparty statements.

· Understanding linkages among OTC and other verticals.

*Fund Accounting:*
· Delivery of weekly / month end PNL & NAV accurately and in a timely manner.

· Delivery of doing estimated PNL by the client agreed timeline

· Establish as a key contact for accounting group for a client and address / escalate any accounting
issues faced by the clients

· Prepare NAV Pack & Investor Allocation.

What does CDS mean in trading?

Credit default swap

Credit default swap (CDS) is an over-the-counter (OTC) agreement between two parties to transfer the
credit exposure of fixed income securities; CDS is the most widely used credit derivative instrument.

credit default swap (CDS) is a financial derivative that allows an investor to swap or offset their credit risk
with that of another investor. To swap the risk of default, the lender buys a CDS from another investor
who agrees to reimburse them if the borrower defaults.

What is an example of a CDS?

Examples of CDS tools include order sets created for particular conditions or types of patients,
recommendations, and databases that can provide information relevant to particular patients, reminders
for preventive care, and alerts about potentially dangerous situations.

What is the basis of CDS?

The CDS basis is simply the difference between the spread an investor receives when owning a physical
corporate bond, and the Credit Default Swap (CDS) of the same bond

What is CSD in Zerodha?

The Currency Derivatives Segment (CDS) should be enabled for the Zerodha account to trade in currency
F&O. To learn more, see How to activate F&O? Currency derivatives are F&O contracts traded on
exchanges, similar to stock F&O.

What is the NAV formula used in P&L method?

NAV is calculated by dividing the total value of all the cash and securities in a fund's portfolio, minus any
liabilities, by the number of outstanding shares. The NAV calculation is important because it tells us how
much one share of the fund should be worth.

What is NAV?
"Net asset value," or "NAV," of an investment company is the company's total assets minus its total
liabilities. For example, if an investment company has securities and other assets worth $100 million and
has liabilities of $10 million, the investment company's NAV will be $90 million.

What is NAV and dividend?

A mutual fund's NAV is calculated by dividing the value of the fund's assets by the number of the fund's
outstanding shares. When a fund distributes dividend payments to its shareholders, the NAV declines.
Shareholders must keep this in mind when attempting to determine how well their investments are
performing.

How do you calculate NAV in fund accounting?

A fund's NAV is calculated by dividing the total value of all the cash and securities in a fund's portfolio,
less any liabilities, by the number of shares outstanding.

*guys take it serious/* and prepare well