The Economics of the Debt Markets

[Mr Kipling]

Hi everyone,

I'm having some trouble with an assignment containing an economics issue and was hoping you could help.

The problem:
I'm working on a shadow banking assignment, specifically related to the issue of margin/haircuts in collateralised finance transactions (derivatives, repos, securities lending). I need to write a section on "the economics of the debt markets" that specifically relates to the aforementioned.

What I think:
I think this relates to various things:
1. The supply and demand for shadow banking services as it undercuts traditional banking
2. Collateral Intermediation i.e. collateral velocity, (re-use/re-hypothecation of collateral).
3. Economic functions: Hedging, financing, price discovery and liquidity


Any help would be greatly appreciated.

Thanks in advance.

Mr Kipling