1. If a bank attracts new equity to increase its Tier 1 capital ratio, what happens to its cost of equity and its intrinsic value if it invests the new equity capital in (a) deposits with the central bank or (b) a broad equity market index?
2. Consider a large banking group with businesses in retail banking, equity trading, and mergers and acquisitions (M&A) advisory. Discuss its potential for creating value based on the possible underlying sources of competitive advantage for each of these three business areas.