Discounting [37]

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Bullet points include: Brunnermeier (2008) and others characterise liquidity into two types Funding liquidity: how easy is it for investors and arbitrageurs to obtain funding by pledging assets as collateral Influenced by market structure, transparency of valuation etc. Market liquidity (aka asset liquidity): how easy is it to raise money by selling  assets Influenced by bid-offer spreads, market depth, market resilience Interaction can cause liquidity to evaporate very rapidly, e.g. via: Loss spirals - lenders may require borrowers to put some of their own money at stake, and (mark-to-market) losses will deplete the available capital Margin spirals - may stop other market participants from exploiting the ‘attractive’ prices at which positions are then being liquidated

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