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Investment banking: The hot new MBA destination

November 11, 2005

The hot new destination for campus placements this year is Investment banks or I-banks

An investment bank is a financial intermediary between the public and a corporate. It advises corporates on mergers (when two companies join and become one company), acquisitions (acquiring another company), new issues (when a company offers shares in the stock market) and other such financial matters.

Some examples would be SBI Capital MarketsMorgan Stanley, Saloman Smith Barney, Goldman Sachs, DSP Merrill Lynch and J P Morgan

Second-year students Neha Singh and Ashin P Thariyan from IIM-Calcutta completed their summer training at I-banks abroad in 2005.

Neha Singh, a computer engineer from Netaji Subhas Institute of Technology (formerly DIT), Delhi, joined IIM-Calcutta as a fresher last year. She did her summer internship with Lehman Brothers, Hong Kong.

Ashin P Thariyan, an engineer from IIT-Delhi, worked as a software engineer in Virtusa (India) Pvt Ltd, Hyderabad. He completed his summer internship with Deutsche Bank, London.

As part of a reader-driven series on campus placements, Neha and Ashin share their experiences and help you gear up for your I-bank interviews. 

Neha's tips

i.
What an I-bank looks for

Typically, you are expected to have good analytical, quantitative and communication skills. You must be able to work well in a team. You must be very committed and display leadership potential.

Accordingly, candidates should highlight these aspects in every way possible.

For example, a background of winning in Mathematics competitions would indicate good quantitative ability, an engineering background may indicate analytical ability, an excellent academic record throughout school and college shows hard work and commitment, positions of responsibility showcase leadership potential and an ability to work with a team.

It is not necessary to have all these aspects, but it is important to highlight the ones that are your strengths.

ii.
How to prepare

~ As background preparation for the interview stage, reading the first six chapters of Options, Futures And Derivatives by Hull and introductory parts of Introduction To Corporate Finance by Brealy Myers can prove useful.

~ Puzzles and questions on probability are often asked, so it is a good idea to practise a few to set your mind thinking.

If asked to solve such questions in the interview, it is important to think aloud to guide your interviewer through your method.
They are more interested in your thought process, than in the final solution.

~ Preparing personal questions is important.

Be very clear about the reasons for your choices at every transition point in your life, especially the reasons why you took up management and why you are interested in I-banking at this point.

~ Indicate a particular I-banking function you are interested in only if you have in-depth knowledge of the division.

~ Other aspects to prepare for could be strengths, weaknesses, instances of leadership/ failure, etc.

iii. 'Do you have any questions for us?'

Don't decline. Be prepared with at least two questions about the company, the more specific the better.

Remember, cracking summers is a lot about being confident of yourself.

Ashin's tips

Preparing for interviews with I-banks on campus can be a tough job. While there will be a few candidates for whom the banks would be falling head over heels, most people have to put in some effort to get an I-bank offer.

You are not expected to be super knowledgeable in the technical details of finance. But, as the years go by, it is possible that the level of knowledge expected from students would increase.

Apart from the usual interview skills, here is what a student should brush up on for an I-bank interview:

i.
Spruce up your finance knowledge

Familiarise yourself with the working of fixed income markets, derivatives, etc.

Fixed income markets: This refers to the bond markets. A few basic things to learn would be bond yields which are a measure of the returns you get on a bond given the price you pay for it and the coupon you get, duration of bonds, term structure of interest rates, how interest rates vary as term to maturity of a bond varies.

Issues like low bond yields in US and reasons for it can be touched upon and could be helpful in the interview.

Derivatives: A derivative is a financial instrument that does not constitute ownership, but a promise to convey ownership. It derives its value from the value of an underlying asset.

Call (option to buy) and put (option to sell) options and their payoff diagrams are the basic things you need to learn in derivatives (all these need not be learnt by heart, though most I-banks would be more than happy if you are able to work out the diagrams during the interview).

Basic trading strategies using a combination of options and Black-Scholes Option Pricing Model (a model to find the value of options) are the next things you need to learn.

You could get started with derivatives by visiting
http://www.investopedia.com.

Study material for derivatives can be easily downloaded from the National Stock Exchange's Web site. The material has been developed by the NSE to help people learn about derivatives.

The web site link is
http://www.nse-india.com/content/ncfm/ncfm_modules.htm

ii. Get statistics

Questions based on probability would most likely be asked in your interview.

People with a strong quant backgrounds, especially those interested in research, can really get the interviewer's attention here.

iii. Puzzles

There are Web sites where you can find puzzles. It would be a nice idea to look at the mathematical and logical puzzles and try solving them. Remember, it's not necessary to solve a puzzle in the interview.

You should however think aloud while solving so that the interviewer can clearly see your chain of thoughts. You could also ask for some hints if you are stuck at some place.

One good Web site for practicing puzzles is http://www.rec-puzzles.org/.

iv.
Economics

Learn about macro economic variables like inflation rate, currency exchange rate, and interest rates and how they are impacted under different monetary or exchange rate policies adopted by the government.

Again, the investopedia Web site is a good place to start off.

Be thorough with the current major economic issues in the world, like high crude oil prices and have a view on how you think it will pan out in the future, the Hong Kong WTO ministerial (and the Cancun meeting two years ago) and the major sticking points related to it, American trade and current account deficit and why it resulted in Chinese currency revaluation, the current China-EU tiff about trade, etc.

Expect some out-of-the-blue questions like where would you invest a million dollars if you had it.

Be ready with some ideas and their justification.

v.
Books to read 

Dynamic Hedging by Nassim Taleb: It talks a lot about options theory from a practical perspective. He also wrote a second book called Fooled By Randomness which is less applied and more philosophical. It's worth reading but only if you've covered everything else on the list.

Options, Futures And Derivatives by Hull: This is very mathematical and dry. But it is a fairly comprehensive overview of much of the financial maths that is used.

On a more lighthearted note, also read Liar's Poker by Michael Lewis, which gives an account of a US investment bank in the 1980s.

Have you done your summer training? How tough was the placement process?

Share your tips, advice and experiences.

Don't forget to mention your name, age, institute, company where you trained and what you are currently doing.




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Number of User Comments: 6




Sub: superb article

thanks for the article.. it is no doubt a very crisp and relevant article for many beginners.


Posted by vivek jha





Sub: i appreciate this article

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Posted by kuldeep sharma





Sub: A nice article about the interview process of I-Bank

Really great to see those tips about the I-Bank interview process. It is really helpful for all those who want to make a mark in ...


Posted by Kunal Suryawanshi





Sub: good guide

It is really helpful since,finmin has given valuation for mergers & acquisitions of banks. would be helpful if get chance to do summer projects on ...


Posted by pravin hatage





Sub: hi

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Posted by robins




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