Here’s the Student Recap — Nov 19, 2025 (10:30)
We opened the Equity block of the course (Part II: Markets), building on Part I (Monetary Policy & Stability).
Framed what’s coming: equity markets, practical market mechanics, and connecting risk/return to what you already know from time value of money, bond pricing, and duration.
Primary market: IPO process (firms list shares for the first time; underwritten by investment banks).
Secondary market: where shares trade after listing; we’ll look at order types and execution logic next session (market/limit, etc.).
Why less emphasis on deep equity valuation here: heterogeneous backgrounds (some know DCF/accounting well, some don’t). We’ll keep it conceptual and exam-relevant.
Bonds: price = PV(coupons + principal). Precision matters; uncertainty mainly via rates/credit.
Stocks: price ≈ PV(future dividends/FCF). Forecasts are inherently less stable (news, policy, shocks).
DDM/Gordon: a mental model for linking dividends, growth, and discount rate (we won’t over-index this for the final).
Cash → infinite liquidity, ~0 risk/return.
Loans, bonds, stocks → finance real activity; this course emphasizes market-standard instruments (bonds/stocks), not bespoke loans.
Derivatives → mainly for hedging (also speculation). Core idea: hedge ≠ bet.
Financial system split into markets, banking, insurance (three supervisors/policemen).
Banking: monetary policy (rates → 2008; QE → since 2008) + Basel I/II/III (credit; op/market risk; liquidity/systemic).
Key transferable skill: duration (what moves when rates move). If you master duration, you can re-derive bond prices and most exam math.
Store of value, unit of account, medium of exchange (means of payment).
Mostly digital in practice; value is intangible/contractual, like other financial claims.
Final exam: Wednesday, Dec 3, 08:00 (same room). Coordination in progress (overlap with Ethics noted; prof. is aligning with Jorge).
Format: same spirit as the midterm; no negative marking per question.
Not in scope for calculation on the final: full CAPM derivations.
You should be fluent in:
Time Value of Money (discounting),
Bond pricing and Duration (Macaulay & modified),
System map & supervisors (markets/banking/insurance),
Basel essentials (I/II/III) and link to monetary policy (rates/QE).
Upload of all transcripts to NotebookLM to synthesize “typical questions.”
Next class: order types & execution in equity markets; continue risk/return intuition; connect to practical exam-style prompts.
Re-do a bond price + duration exercise from scratch.
10-minute refresh on Basel I/II/III headlines and why they emerged.
Be able to explain the three functions of money in 60 seconds.
Know the difference between primary vs. secondary markets and what an IPO is.
19 de noviembre de 2025, 11:11a.m. 39 min 54 s English. 6. I’m gonna. I’m going to assume that it’s been recording properly because last day I get depressed last day, just when I saw that the class has not been recorded, I feel like, oh, I have, I cannot go back in time, I cannot have it. But then I think, oh, it was the class that I have already teach. I have chat GPTI know all things that I have told you and I just write what I have sent you in the summary. Private equity, corporate finance, a Bida. Yes, all things personally that I think were important. I have put it in the summary. I have sent you yes a. Today we are going to talk about equity markets. Today we are going to talk about equity markets, but and today I will say a lot of information regarding equity, but important things has already been done. Important things has already been seen. I haven’t written yet. I haven’t written. I don’t know how it is going to be and I have wonderful tools in order to help me with writing things. The structure structure of the final will be the same as the middle, yes. It will be the same. Final will be whole the 3rd of December at 8:00 in the morning. Yes, like if it were a Monday in this same room. Yes, don’t smile. Why are they? Because I today I have a class after this class of three hours. Today I’m going to miss one class. Next Wednesday I’m going to miss one of three. And I have asked people from there that if the final could be a day, they have told me that yes, and they have told me that there are no problems with the schedule. I don’t care. I mean, I don’t care. I cannot be in two places at the same time. And if you are in one place, personally I want to be full in the place. After this class of three, there is one that I will not go. I have tell the students there is one class that you will miss. But I wish all problems were of this kind. We are healthy, we are alive. And let me come back. Thank you. Now the third that is there are in classes. It’s a final exam. There are still classes. But I have asked Jorge, Jorge and Jorge told me that at three is OK, that at eight is OK. I can talk. You have classes. Which is the class? Ethics. Ethics. Who is the teacher? Santiago and the third day is last. I’m going to talk with Jorge and we’ll confirm, yes. Because because I have already told him that the exam will be whole at three at eight and he told me that there is no problem on that. Hey. But probably he won’t, you know, he wouldn’t have no disease and they’re we would, I would take and don’t worry. I’m not. I mean, yeah, I I’m pretty sure we have. But I have told him that the exam will be hold and is there is another group of finance and the exam should be hold at the same time and the other group and the other group is a date. But I don’t know and I will see. The survive that I did was in order to see there was another class and now I know that not now. After having seen the the survive, I noticed that there is another class and personal. If it has to be done a date, it should be done a date and if I need to do it later, I will look the way in order to do it later. I have told Jorge that I need to that to be a date and he told me that it was OK. And if you see the in the e-mail that you have received, it’s marked at 8 things. In the final, you are not going to see anything really new, a part of the things that we have already seen. What I’m going to do in these classes is. Talk about equity markets, but regarding equity markets, most of the things that we are going to see, you already know it. For example, what is the primary market for equity? The IPO process, the IPO process. What is the IPO process when you? Food you introduce in the market stocks for the first time. In order to do the IPO process, what do you need? An investment bank, but this is going deeper into details. Yes, I have talked about the stocks. I’m going to say a lot of things regarding the stocks. I will talk about CAPM. I will talk about beta. I will talk about risk and return. But I will not ask Capain in the final. Yes. Why? Because. In this class I have several levels. I I have people that has a high level of finance and know how to discount cash flows and then also I have people that has no idea regarding accounting. And it will not make sense to ask things regarding cafe to people that doesn’t know a word regarding accounting. Makes sense. And my class is not a company. My class is financial markets, international financial markets. What questions? I am not going deeper through all. I’m not going deeper through all. But what are the typical questions? That can you find in the final that if you take all transcripts and if you ask what are the typical questions that could be asked, I’m sure that Google knows Google and next day I will take all transcripts and I will upload. Next Monday I will upload. Translate a. I will take all transcripts and I will upload them to the to Google Notebook LM and I will play with all these transcripts, yes, but I’ll what are if I were Google Notebook LM after having received all transcripts, what are the typical questions or the typical points that I will that you should know? Yeah. Absolutely. While you how to calculate the price of a home, how to work with the value of money. And then if you know duration, you know before going duration, if you if you know well what is duration. You will know how to complete the price of a vote. You will also know how to play with time value of money. You will know how to calculate an internal rate of return. You will not be asked to calculate an internal rate of return. But what I’m telling is that if you know the information, if you can, if you can go to the third floor. You. Without any problem, you can go to the first or to the second. Do you understand what I’m saying? What is duration? How much the price of the ball changes when interest rate changes? So if you know duration properly, you know how to calculate the price of a ball. Yep. Also, the financial system is divided into how many parts? Three that are. Yes, and if you have came to half of the classes, so you know to answer, you know how to answer to this class and to this question. This is not the first time I am asking this question and why this division has been made. Because of there are three different supervisors, policemen and supervisors are also important. Why? Because because it has to do with law. Has to do with law, has to do with how the system work. And I don’t care about your nationality. I don’t care about which country you came from. Oh, all financial system all over the world in. That you. In all countries, probably in Ghana. I don’t know about financial system in Ghana, but all of you came from countries. So all financial systems are. The same. Almost the same. Why, John? Yes, the more standard how all international airports are. Frederica, have you been in an International Airport? All of them are. Once you have been in one, you have been in all. You understand what I’m saying. Why this? Because it’s easy. Once you are there, you get the ticket and you know where to go. You knew you look for the gate. You know, sorry, first ABCD. You look for the part of the airport you are. Then you look for the gate and once you are in the gate, you show your passport, then you show your ticket and you are in. Once you have been in one, you have been in all. With financial system, it happens the same. How many markets? There are all over the world a lot. How many airports? There are all over the world a lot. But because they are the same, they are not the same. Sorry, they are standard. They are absolutely standardized. Once you have been in one, you can say that you have been no. Careful, because it’s not the same. The food from one, then the food from another one. There are some specialities, but it’s absolutely important to understand that. Financial system is dense for standardization. You think about driving. It happened almost the same, apart from sure, apart from England. That’s still joking, but not too much. Why in England people? Why in UK people drive from the other side? As we do with protection, it’s an intelligent way. You can sell cars all over the world because for you guys riding on one side or another one, but if I am friends, I’m saying in your case much, much more complicated because all my cars are prepared, you drive on one side. It has to do with protection and it’s not that. Same happened with feed. Why do you use? Why do you still use feed? Hold all our union feed. Why do you use feed? Because you know or you can know how to sell in centimeters, but it’s a way in order to protect. Yes, sorry, I’m the one that is that is making noise. So financial market. Is divided into. Dream parts because of. There are three supervisors. Then there is banking system. Banking system is being supervised by central banks. And if I say, if I talk about banking system, I’m summarizing a lot, yes, but there are two things you should know. Two, not just two, two big blocks of things you should know on one hand. I’m talking about central banks and banking system. On one hand, there is monetary policy. Internet rates, not gas interest rates, interest rates till year 2008 and quantitative efficiency since year 2008. Yes, there is a there are rates, there is you know power, there is Christine Lagarde, there are central banks. And there is quantitative issues. I’ve talked a lot regarding monetary policy and a second thing you should know regarding banking system has to do with, let me say, risks. And let me say passer regulation, passer regulation, yes. As a regulation has three different types, as a one, as a two and as a three, as a one came from the 1980 ninety 80s and as a one has to do it. And the weighted assets, you remember we did two days numbers regarding the weighted assets and Basset one, then Basset two games after the 11th, the 11th, the 9/11, how you say in the States 9/11? 911, the 911. No 9/11, 9/11 after the in Spanish we would say after the 9/11 attack. Yes, that year 2004 9/11 attack, we realized that there is there was operational risk. Operational risk, all your business can disappear one day from another, one day from another. All your business can be can disappear. And in year 2004 central banks and Basel OK Basel one was important that we need to. A play Vasal one and two Vasal 2 and Vasal 2 has the three pillars and include more risks, not just credit risk, but also operational risk and market risk. What is market risk for a bank? Interest rates, not just interest rates and also for. But interest rates and if I say interest rate increase, what you should think about? If I say interest rate increase, what you should think about? What do you mean? Sorry. Relation, relation. At the end, everything is interconnected. I’m talking about banking business and I have say about, I have talked about monetary policy and I’m talking about banking regulation. You have banking regulation lesson 4 and you have monetary policy in previous lessons, yes. Then insurance, insurance. I haven’t said a word regarding insurance contracts, though nothing regarding insurance is going to be asked. That is one of the parts financial system is divided, yes. Here lesson five, I could have talked about insurance, but I have yes. Insurance contracts, insurance contracts has to do with claims you pay. Again, insurance system. Insurance system. Sorry, insurance system. No insurance sector. Insurance sector is not a system as banking system is. You see what I mean? What I mean is that why banking is a banking system. Everything’s separated. When talking about insurance, there are big numbers. As big as banking system, but when talking about insurance, you cannot talk about systematic risk. You can talk about catastrophs, big catastrophs, but there is no systematic reason when talking about insurance, but I’m not going to ask anything regarding insurance, yes. And regarding markets, there is one absolutely important concept that is the concept of financial instrument. What is a financial instrument? It’s an intangible asset for the owner and the ability for the issuer that denies value because of a contractual claim. I. Can you give me example of financial instruments? Give me, for example, one financial instrument. Don’t say a calculator. Don’t say that has one financial instrument with zero return, zero return, zero risk. And because you are young, infinity, liquidity. So close. So close. No, something more. He. I don’t know. I don’t know. Bonnie, Bonnie, do we have to talk about money? Yes, we have to talk about money. We’re talking about monetary policy, but also we have to talk about money as. As a financial instrument itself, Money tell me. So the definition is not correct, right? Because which definition is not correct? No, money is intangible. Why money is valuable? Yeah, why are you saying that money is valuable? It’s not really not real, but what you are touching in this paper. Money. Money is not worthy because of the paper. Is intangible. For example, IP, the intellectual property, there should be a contract and this contract can be written where the rights have been written and no matter you’ve got a contract, it’s intangible or a brand. You can touch Coca-cola. You can take a tin of Coke. Touch it. But this is still intalible. And gas is tangible when we are talking about the ball, but more sorry about the bill. Yes, we are talking about the bill. You can touch the bill, but you have gas, you go and pay. And you don’t pay with physical money. I will bet that 90% of the pays you make each day to do it with or with a telephone or with plastic or with your watch. So you are paying zeros at once your pays your payments. Our digital elements make sense money. What is money? But is money. No one store of value. Two more left. Money is being divided by each use. We have saved storage of value. It can be denominated. Thanks to money. You can come. You don’t need to. Yesterday it was this night. Cristiano Ronaldo made a selfie. Have you seen it? You know Cristiano Ronaldo. Cristiano Ronaldo. I am not sure and I don’t care. I think that yesterday he was in the White House. And he made a selfie with her wife, Annie Lomas. And two more people, but I I haven’t seen that whatever in this in that survey, there were trillions, trillions. I don’t have trillions, but I can talk because of money about how much wealth they have. Yes. So thanks to money, you can come, you can search value, but what do you do with money? You pay, you pay. Thanks to money, you can easy trade. So money is something that has three main uses. But it’s a value you need to account and it helps trade. Thanks to money you can trade in a simple way. Also you can call this function as a mean of payment, something that helps you payment you don’t need. trade in your way. What do you call an English trade your way? I don’t know if you need to speak bartering. I don’t know even in the Spanish. I have my back. I give you my back and because of my back you give me something you want. Let me look for it because I want just. I want the word in English because it’s a word that probably I know. True case in Spanish and English. Barter. Did you say that the first one? Barter. Barter. Barter is the word I was looking for. I have told you that I have already know it. No, I was lying. It’s the first time I hear Barter, and it’s also today the first time I have heard. But we can remember at the table. You know, in Spanish, capital. Yes, I was going. There will be more things asked. There will be more things asked and I’m going to give you all transcriptions and I will go through the transcriptions and I will see. I will. So we’re going to make a summary. I will, I will prepare exam with you. I will not tell you what are the questions of course, but I will prepare it with you. And also regarding the test, this question will not take out. If you fail one question in the test, there won’t be points taken out from that question. You understand what I’m saying. OK. What I’m going to talk today, we are going to talk about equity. Anger. There are several things, equity valuation. I’m not going to talk too much about equity valuation because of what I have already said. There are people that know about accounting. There are people that does not know about accounting and regarding, let me talk so quick regarding equity valuation just right now. And this is what I want you to know, not for the final, just for life. Oh, hold on. There are, let me come back. Financial instruments. There are three kinds of financial instruments, 3 levels of financial instruments. There is cash. Then there are bonds, loans and stocks, yes. And then there are everybody’s, yes. Cash, your infinitive liquidity, 0 return, zero risk, then bonds, stocks and loans. Our instruments, financial instruments that are used in order to get finance. I need money and what I will do, I will issue stocks, loans and bonds. Careful because when you issue stocks, you are selling the owners. Make sense? And then derivatives are 0 sum games. We will talk at the end about derivatives, but you don’t use derivatives to get finance. You use derivatives to hedge, hedge, hedge. I have pronounced it. OK, all right. But now this is a disaster. Can you say no, no, not so, but hedge, hedge. Hedge. Hedge is an important word. Hedge. Why? Because finance has to do with risk. Finance has to do with uncertainty. When there is uncertainty, we hedge. What are we doing? We are covering ourselves. We are avoiding risk. Yes, derivatives are being used to heads and derivatives are also being used to speculate and with derivatives we can do a lot of things but. We are here, bonds, loans and stocks. What is? If you need money, what are you gonna do? You will go to the bank and you will ask for a loan, yes. But this class, what is the name of this class? Financial markets. Why don’t we talk if loans is the instrument that people use more in order to get finance? Why don’t we talk about loans so much? Because loans are not standard and because loans are not the standards, they are not trading. Take on that in markets and because there are no public markets regarding boats, sorry regarding loans, yes. And I have talked about bonds, a leader or a lot. A lot. Why? Because when we talk about bonds, we are not just talking about financing, we are talking about markets and we are talking at the same time about corporate bonds and public bonds and when we are talking about. Public bumps we are talking about. The risk free asset, we are talking about something that is secure and when pricing a bond, what can you be sure that there is credit risk, that once we forget about credit risk, the payments that you are going to receive? Is something fixed because of this is called fixed income. But what I’m saying is that when evaluating a bond, it makes sense to calculate numbers with two decimals. When getting the value of a bond, it makes sense. To get the value with decimals. Are you understanding me? On the other hand, how do we get value of bonds of bonds? How do we get the value of coupons? Plus face value, no. You understand what I’m saying. I calculate present value, present value of coupons plus face value, yes. Oh, we like it. The price. How will I get? Or will I get the price of a stock? What does struggle pay? So we’ll pay dividends. A stock will pay dividends. Gordon is here. The dividend is for model that is DDM and also the Gordon is talking model. What is about the? Dividend discount model and Gordon discount model is just calculating present value of future difference and at the end you can calculate how much the what will be the price of the company in 10 years that is this price in 10 years is like face value. Is the price that which you can sell for each one price that takes following coupon. Yes, I mean you can consider you can calculate the pressure of stock with dividends forever and calculating present value. I mean you don’t want to do dividends forever. You can say how much the stock will worth in 10 years. And you consider a final value. Makes sense. At the end, what I’m saying, how do you get the price of a stock? How do you get the value of a stock? By calculating considering markets efficient by calculating present value of future dividends, yes. Can you forecast dividends? Yes, you can, but it’s the same forecasting dividends than. Thinking about coupons that the board will pay is an absolute, an absolutely different thing. Can you make a road with stone? Yes. Can you make a road with? With snow. Can you make a road with snow? Yes. But do you understand that making if you are a romance, my true romance friends, romance used to make make roads. 2000 years ago and we still have these roads because these roads were made in stone. If you make a road in the snow with the snow, you can be Santa Claus where I don’t. I don’t want to create a diplomatic conflict. That’s Santa Claus. She’s from Finland, Finland. Yes. No matter if you are in Finland, you can make a road with with the snow, but this road will not leave too much. Have you understood this metaphor? Trying to add, they’re trying to get the value of stocks. They’re trying to construct roads with snow. I’m not saying that you cannot do it. I’m not saying that you cannot do it. You can do it and a lot of analysts do it every day, but you should be aware that all these analysis length one day, two or one week. Make sense? Why? Because Trump talks. About tariffs and the war had changed in minutes, minutes. There is an attack in Israel. Sorry, in Israel. Yes, in Israel and all supply chains all over the world. Change from one day to another one day. There is a pandemic and from one day to another day everything changes. Make sense. I’m talking about black swans. Are there black swans? Something unexpected? Are there unexpected things? Yes. What I’m saying is that how can you get the value of a company by calculating present value of future cash, by calculating present value of futures. But if I am talking about the stocks, you should understand that that is uncertain, uncertain. If I’m talking about bonds, there is uncertainty, but uncertainty whether the bonds has to do with. There’s very great food. You understand what I’m saying? Then imagine that I want to make a film about finance. Yes, I make. I want to make a film regarding finance. Wall Street, Wolverine, for example. Or Wall Street. There is a film called. There are two parts of Wall Street. They want to make a film regarding science. Yes, but I will make the film about it’s income. It’s income is so boring. I will make the film about stop sets because there are companies that are there is much more emotion, but what I I don’t want you to take from this class. A film in view. I want to take from this class a real view of how the financial system works. And if you think about films like in films, it’s absolutely emotional. Have you ever seen a film regarding an accountancy regarding an accountant? Have you ever? Have you ever seen a film regarding an auditor? It’s boring. There is one thing of that of that. There is one series of that that is about an auditor and accountant, but it’s not about an auditor. It has to do this feeling with the money laundering. The end money laundering has to do with rash, with killing. But I’m saying that there are things there are I have told you at the beginning of this class about social inequality. I have told you about problems that happens in everyday life, but you cannot make an exam. The question are going to be how much suffer one kid born in or what how much. Affair has one kid born in Bangladesh. I cannot ask this in one exam. What I should ask or what can I ask in one exam? I’m giving you a bone calculated ratio. You know what to calculate. You calculate it. You are done. I give you a grade. You go back. You see how the world works. What I’m saying is that. Gas is something we already, all of us has gas in our public, but we are not aware about money, about monetary policy and what is the impact of monetary policy in our life, inflation and all this stuff. Then bonds and stocks has to do with markets. Loans are important, but I’m not going to talk too much about equity evaluation. Why I’m not going to talk too much about equity evaluation? Because of all things I have said then. IPO process. What is an IPO process when you issue a company to stop for the first time and also next day? Next day. Perfect. Next day I’m gonna do two things. Next day I will. Upload into Google Notebook LM all the all the presentations and I will ask again what are the questions I’m going to ask in the final to Google Notebook LM. Please, these questions is like a workout. These are not going to be the questions. Don’t just think that I’m going to study the course with you and also I will go quickly through. This is like, this is like and I would like, I would, I want to go, I want to be a little bit in this slide. I want to talk you about orders in markets. Why? Because one thing is doing in class one exercise regarding I’m going to buy 10 stocks. But in real life what we should do with the stores finally and if I am talking about orders, I am talking John about equity, equity because at the end you can you want you could want to buy one stock. You cannot find a seller, but you can sell a seller, but not at the price you want to buy. There are a lot of cases, specific cases. Make sense. Yeah. Who will consider the class done? Because I need to go to another place and 1st I want to talk with Juan upstairs. Yeah.