Sample interview questions: How do you assess the creditworthiness of potential counterparties in derivative transactions?
Sample answer:
Assessing Creditworthiness of Potential Counterparties in Derivative Transactions
1. Financial Analysis:
- Evaluate financial statements, including balance sheets, income statements, and cash flow statements, to determine asset quality, profitability, leverage, and liquidity.
- Calculate financial ratios to assess debt service coverage, interest coverage, and return on assets.
2. Industry and Market Analysis:
- Understand the industry in which the counterparty operates and its exposure to economic cycles and competitive pressures.
- Assess market conditions and the potential impact on the counterparty’s financial performance.
3. Credit History and Ratings:
- Obtain credit reports from external agencies such as Moody’s, S&P, and Fitch to evaluate historical payment performance and credit standing.
- Consider ratings from internal credit risk assessment models or due diligence assessments.
4. Management and Corporate Governance:
- Evaluate the quality of the counterparty’s management team and their track record.
- Assess the effectiveness of the company’s internal … Read full answer
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