Money Market: A Study with Reference to India

Abstract

A well regulated financial sector is essential in globalize economy. Financial innovation has contributed in the economic development. A financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries. Most financial institutions are highly regulated by government. The definition of money for money market purposes is not confined to bank notes but includes a range of assets that can be turned into cash at short notice, such as short-term government securities, bills of exchange, and bankers’ acceptances This paper analyses the real effects of financial markets subsequent to financial liberalization in an economy with risk averse savers and learning by lending. Transition from full financial repression to full financial liberalization might initially slow down the growth process or even induce a recession, whenever the initial level of valuable investments known by the financial intuitions is sufficiently scanty. However, lending activity leads to accumulation of information (learning by lending) regarding valuable investments. The purpose of this paper is to advocate and encourage financial markets in the overall development of the economy.