A conversation with Tom Rutledge, whose winding career has made him a veteran of not only the commercial real estate industry, but the trading floors of Wall Street, the newsroom at NPR–and two days on Jeopardy!
Ep.1 Tom Rutledge – Independent Advisor and Investment Banker
Ready to dig deeper? Below you'll find useful reference links and definitions of key terminology mentioned in this episode. To learn more, visit coffeeconnectors.com.
Capital Markets: The part of a financial system concerned with raising capital by dealing in shares, bonds, and other long-term investments.
Derivative Products: A derivative is an instrument whose value is derived from the value of one or more underlying, which can be commodities, precious metals, currency, bonds, stocks, stocks indices, etc. Four most common examples of derivative instruments are Forwards, Futures, Options and Swaps.
Options: Options are derivative contracts that give the buyer a right to buy/sell the underlying asset at the specified price during a certain period of time. The buyer is not under any obligation to exercise the option. The option seller is known as the option writer. The specified price is known as the strike price. You can exercise American options at any time before the expiry of the option period. European options, however, can be exercised only on the date of the expiration date.
Futures: Futures are standardized contracts that allow the holder to buy/sell the asset at an agreed price at the specified date. The parties to the futures contract are under an obligation to perform the contract. These contracts are traded on the stock exchange. The value of future contracts is marked to market every day. It means that the contract value is adjusted according to market movements till the expiration date.
Forwards: Forwards are like futures contracts wherein the holder is under an obligation to perform the contract. But forwards are unstandardized and not traded on stock exchanges. These are available over-the-counter and are not marked-to-market. These can be customized to suit the requirements of the parties to the contract.
Swaps: Swaps are derivative contracts wherein two parties exchange their financial obligations. The cash flows are based on a notional principal amount agreed between both parties without exchange of principal. The amount of cash flows is based on a rate of interest. One cash flow is generally fixed and the other changes on the basis of a benchmark interest rate. Interest rate swaps are the most commonly used category. Swaps are not traded on stock exchanges and are over-the-counter contracts between businesses or financial institutions.