A typical algorithm would be as follows, with string indexes ranging from 0 to M-1.
It returns either the position of the match or -1 if not found.
foreach hpos in range 0 thru len(haystack)-len(needle):
found = true
foreach npos in range 0 thru len(needle):
if haystack[hpos+npos] != needle[npos]:
found = false
break
if found:
return hpos
return -1
It has a reasonable performance since it only checks as many characters in each haystack position as needed to discover there's no chance of a match.
It's not necessarily the most efficient algorithm but if your interviewer expects you to know all the high performance algorithms off the top of your head, they're being unrealistic (i.e., fools). A good developer knows the basics well, and how to find out the advanced stuff where necessary (e.g., when there's a performance problem, not before).
The performance ranges between O(a) and O(ab) depending on the actual data in the strings, where a and b are the haystack and needle lengths respectively.
One possible improvement is to store, within the npos loop, the first location greater than hpos, where the character matches the first character of the needle.
That way you can skip hpos forward in the next iteration since you know there can be no possible match before that point. But again, that may not be necessary, depending on your performance requirements. You should work out the balance between speed and maintainability yourself.