International Finance and Accounting Handbook

wholesale finance providers are governments, corporations, banks, and investment
managers of many types. The services offered by wholesale finance firms include
bank lending, securities market transactions, mergers and corporate restructuring
advisory services, and asset management. In this chapter we refer to wholesale fi-
nancial service providers as investment banks, although traditional investment banks
now engage in many other services, and other types of financial service firms (such
as traditional commercial banks and universal banks) also offer wholesale market
services.
Investment banking is among those financial-sector activities that have had im-
portant catalytic effects on the global economy. Investment banks are key facilitators.
They help reduce information and transaction costs, help raise capital, bring buyers
and sellers together, improve liquidity, and generally make a major contribution to
both the static (resource-allocation) and dynamic (growth-related) dimensions of
economic efficiency. In terms of their impact on overall economic development and
restructuring, in advanced and emerging-market economies alike, investment banks
have an interesting and important role to play. The overall market for financial in-
struments within which wholesale financial services forms operate can be illustrated
by the schematic appearing as Exhibit 2.5.
At the core of the market are foreign exchange and money market instruments.
There is virtually complete transparency in these markets, high liquidity, large num-
bers of buyers and sellers—probably as close to the economists’ definition of perfect
competition as one gets in global financial markets.

2.3 GLOBALIZED BANKING ACTIVITIES 2 • 9

Exhibit 2.5. Global Financial Markets.

Forex-

and money

markets

Equity

U.K., Canada, Australia ...

Euro-zone

U.S.

Switzerland

Emerging

Markets

Japan

Risks:

■Market

■Credit

■Performance T-bonds

Corporate bonds & municipals

Equity-linkedproducts