Here’s your Student Recap — November 19, 2025, written as if the class had been fully transcribed. It follows your usual tone for ICADE international students: clear, technical, and conceptually rich, linking macro themes with valuation and corporate finance.
Today’s class had three main blocks, marking the transition from Monetary Policy & Stability (Part I of the course) to Markets & Valuation (Part II).
We moved from understanding how the system stays alive (liquidity, central banks, and regulation) to how people and firms make money (markets, valuation, corporate finance, and risk).
The session combined macro-financial reflection, a valuation exercise, and a bond-duration case inspired by the collapse of Silicon Valley Bank.
“Companies and countries don’t die from losses — they die from lack of liquidity.”
We analyzed how global liquidity has become the common denominator behind AI, U.S. debt, and new fiscal stimulus programs.
Liquidity keeps markets breathing — when it disappears, systems asphyxiate.
AI’s liquidity trap:
Artificial Intelligence consumes enormous amounts of capital, energy, and data infrastructure. Each dollar invested in AI is transformed into chips, energy demand, and more financing needs.
→ The result: AI absorbs liquidity faster than it creates it.
U.S. public debt:
Already above $38 trillion, with the last trillion added in just 71 days.
Rising interest rates increase refinancing costs and push the system closer to structural deficit.
Fiscal stimulus and political cycles:
Pre-election stimulus — checks, tariffs, and subsidies — injects more liquidity into an already saturated system, generating inflationary pressure and future debt.
Strategic implications:
Money is not neutral; it’s a strategic weapon.
Whoever controls its issuance, price, and flow controls global leverage.
While the U.S. expands with debt and liquidity, China accumulates reserves, commodities, and discipline — quietly buying into the U.S. debt market.
“When liquidity is infinite, discipline disappears.
When liquidity stops, reality returns.”
We used a valuation exercise (see class PDF) to introduce the logic of Corporate Finance: how companies create value, manage leverage, and decide how to finance growth.
A company is bought with debt at 10% interest; it’s later sold at an 8% exit yield.
The Internal Rate of Return (IRR) of the operation is 21%.
Behind those numbers lies the logic of risk and return — how capital, debt, and expectations interact.
| Concept | Definition | Class insight |
|---|---|---|
| Accounting vs. Cash Flow | Accounting measures profit; corporate finance measures liquidity and timing. | “Companies don’t go bankrupt because of losses, but because they run out of cash.” |
| EBITDA | Operating performance before financial and accounting effects. | Used as a proxy for operational health before financing decisions. |
| Free Cash Flow (FCF) | Cash available after all investments and operations. | The true base for valuation. |
| Deal structure | Combination of debt and equity to acquire a firm. | Determines risk distribution. |
| Leverage | Using debt to amplify returns. | Debt increases potential gains, but also fragility. |
| Venture Capital vs. Private Equity | VC = early-stage, equity-only; PE = mature, debt-financed deals. | Both use similar valuation logic, but different time horizons. |
| WACC (Weighted Average Cost of Capital) | The expected return required by all providers of capital (debt + equity). | Reflects the company’s risk profile; discount rate in DCF models. |
Corporate Finance is about allocating capital intelligently.
Risk, leverage, and valuation are part of the same equation.
Financial decisions are strategic acts, not just accounting operations.
“Corporate finance starts when accounting stops — when you begin to think in terms of opportunity and timing.”
The final part of the class connected monetary policy with market valuation.
We simulated a bond similar to those in Silicon Valley Bank’s portfolio — long-term, fixed-rate securities bought when rates were near zero.
When the Fed raised rates by 400 basis points in less than a year, those bonds lost around 30% of their value.
If liabilities (deposits) are short-term but assets (bonds) are long-term, duration mismatch can destroy a bank.
Bond pricing:
( PV = \sum \frac{CF_t}{(1+y)^t} )
Macaulay Duration: weighted average time to recover investment through cash flows.
Modified Duration: percentage change in price for a 1% change in yield.
Interest Rate Risk: the inverse relationship between price and yield.
Immunization: matching asset and liability durations to neutralize rate changes.
“Duration is not time — it’s sensitivity.
Silicon Valley Bank died not of losses, but of poor duration management.”
Liquidity and leverage — understand how both create fragility.
Corporate finance foundations: EBITDA, FCF, leverage, and WACC.
Bond valuation: price, yield, duration (Macaulay and modified).
Systemic logic: stability vs. risk-taking; monetary policy vs. market incentives.
Macro connection: when liquidity disappears, valuation becomes real.
Next class we’ll continue with:
Risk and return models (CAPM, Sharpe ratio, Beta)
Equity markets and valuation
How monetary policy and corporate finance meet in the cost of capital
“Finance is the bridge between liquidity and value.
Without liquidity, value cannot move; without value, liquidity has no meaning.”