The firm's market value initially increases due to a lower overall cost of capital, but may eventually decrease due to rising bankruptcy risk

Interest payments on debt reduce market value because

they are not tax deductible

A higher debt-to-equity ratio always leads to higher

stock prices, regardless of risk levels

The firm’s market value continues to increase indefinitely

as debt is cheaper than equity.

Capital market transaction and primary market

transaction

Money market transaction and secondary market transaction

Money market transaction and primary market transaction

Increasing the number of securities in a portfolio

always reduces risk, regardless of how they are related.

The returns on U.S. and European shares are

imperfectly correlated with Australian shares, helping reduce total portfolio

variance through diversification.

U.S. and European shares usually generate higher

returns than Australian shares, which offsets portfolio risk.

International shares are exempt from local market volatility, making the portfolio completely risk-free.

I, III, IV, and V

I, III, and IV

II, III, and V

I, II, and V

BHP can issue securities to raise funds in both Australian and overseas

markets.

It eliminates the intermediation costs for both issuers and investors.

Qantas can design hybrid securities that automatically convert into equity if certain financial triggers are met.

Banks can offer a variety of deposit products.

Off-balance-sheet activities are limited to

traditional loans and deposits

These activities were difficult for regulators to

monitor due to their lack of transparency

Off-balance-sheet items are always more profitable

than on-balance-sheet assets

The notional value of off-balance-sheet activities was

significantly smaller than the banks' total assets

A rights issue avoids the need for a prospectus,

whereas placements are required to comply fully with the Corporations Act

disclosure rules

A rights issue exposes the company to pricing risk due

to the time lag between announcement and issue, while a placement can usually

be executed more quickly

A placement preserves the proportional ownership of

all shareholders, while a rights issue leads to dilution of ownership

A rights issue typically involves selected

institutional investors only, while a placement is offered pro-rata to all

existing shareholders

Companies raise new funds and buy back their securities in the primary

markets.

Secondary markets facilitate the flow of funds by

increasing the liquidity of securities issued in the primary markets.

Capital markets are wholesale markets because only institutional

investors are allowed to trade.

Money markets are open to both institutional investors and the general

public.