Functions Of Financial Markets Finance Essay

The rubric of this article is “ Role of Money Market in Context to Growth of Indian Economy ” . This article is from the diary “ International Journal of Marketing, Financial Services and Management Research ” , Volume 1 Issue 9, September 2012 from page 142 to page 154. The writer of this article is Neha Puri, Assistant Professor of Amity College of Commerce and Finance, Amity University, Noida.


The intent of this article is to advance the maps of fiscal markets in the overall development of the Indian economic system by analyzing the effects of money markets subsequent to fiscal moderateness in an economic system with punctilious investors and roll uping information. The research is done by transporting out secondary research on reading other research workers published documents, and besides informations research. Money markets in India have escalated after the globalisation strategy in 1992 when the rupee is made exchangeable, where its public presentation has been terrific for the past two decennaries. The well developed Indian fiscal market aids in encouraging nest eggs every bit good as being efficient to confront all economic crises.

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The Reserve Bank of India ( RBI ) regulates and manages the money market in India and keep economic crises by instill more money or by decreasing the hard currency militias in the economic system. The growing of the money market helps in the development of fiscal mediators, at the same clip heightening loaning to the economic system which perks economic and societal public assistance of India which the money markets and fiscal mediators signify the state of affairs pecuniary policy maps in. This means that the advancement of the money market reacts together with the banking system, Central Bank, stakeholder ‘s involvement and the economic status on the whole. As money markets are considered the most liquid, it play an of import function in pull offing Bankss ‘ liquidness and the pecuniary policy by offering suited fiscal instruments for trading which permits short-run and medium-term place to be refinanced, liquidness hazard of concerns to be alleviated sing the competence of the cardinal bank ‘s pecuniary policy to further better the economic system.

Money markets under the bid of RBI for the past 20 old ages have matured and become flexible as the authorities permission for Bankss in private sectors to run hold caused betterment in their operation. Name rates stabilized correspondingly to the policy rates and liquidness conditions, which remained above the upper boundary line liquidness accommodation installation corridor doing both certification of sedimentation and commercial paper markets to remain active. Stock monetary values increased on the strong foreign portfolio as the rupee appreciated reasonably against the US dollar. The money market is important to the efficiency of pecuniary policy as the cardinal bank have to guarantee that money market rates and cardinal policy rate are aligned. Therefore, the money market efficiency is critical for pecuniary policy to be effectual.

I agree with the writer that the relationship between fiscal liberalisation and the money market efficiency is positive. For the procedure of fiscal liberalisation to go effectual, the market will hold to be efficient excessively. If the market is non efficient, there would be jobs such as scarcenesss, involvement rates derived functions and so on. It is non possible to talk of fiscal liberalisation before understanding market efficiency, if it happens that the market can non watch out for itself as some sum of intervention and control would be required. That is why before originating policies to liberalise the fiscal sector, we should understand the province of the market so that it can watch out for itself. I find it relevant that fiscal openness is of import to India ‘s economic growing as effects of liberalisation appear to be long lasting, non merely for a short period. The money market mechanism has played an indispensable function in growing of the state.

In contrary, I believe that the Indian money market is still enduring from drawbacks which restrict the market to derive full efficiency. The absence of integrating and multiple involvement rates cause uncertainness among investors, confounding them as they vary from Bankss, periods and even borrowers. The demand for money in the Indian money market is of a seasonal construction. Bing an agribusiness taking economic system the demand for money is generated chiefly from agricultural activities, hence during low season the money market faces regular deficit of fiscal resources as a decrease in income would intend lesser nest eggs and will do deficiency of banking wonts which contributes to inadequate financess and resources for illustration deficit of fiscal instruments ( Treasury measures, Commercial documents, Certificate of sedimentations ) taking into history the size of the Indian population and the measure of fiscal instruments.


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