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Repo market functioning

Repo markets play a key role in facilitating the flow of cash and securities around the financial system. They offer a low-risk and liquid investment for cash, as well as the efficient management of liquidity and collateral by financial and non-financial firms. A well-functioning repo market also supports liquidity and price discovery in cash markets, helping to improve the efficient allocation of capital and to reduce the funding costs of firms in the real economy. However, excessive use of repos can facilitate the build-up of leverage and encourage reliance on short-term funding.