ABSTRACT
Financiers continually seek to improve their profit positions, both by looking to increase margins on the types of deals they are already doing and by finding new forms of profitable deals. Financiers are so interested in new profit opportunities that they sometimes take on new deals whose likely profitability has only been suggested rather than confirmed. When a new type of deal is first taken on, it will likely be structured through negotiation with an intermediary. If the new type of product or service proves to meet a previously unsatisfied client demand, the new type of deal is likely to become increasingly familiar, and its terms are likely to become increasingly standardised. If enough deals are done, it may eventually become possible to carry them out in the marketplace rather than through negotiation with intermediaries. The emergence of the standardised, plain vanilla swap to be discussed in Chapter 13 is an example. If the new types of deals become common practice, they can contribute to permanent changes in financial system organisation. For example, virtually all of the world’s major banks and securities firms now have facilities for trading in risk management instruments, but none of these same firms traded risks to any appreciable degree prior to 1970.
4.1 FORCES OF CHANGE
