Financial markets are the centres that provide facilities for buying and selling of financial assets. Financial markets have developed significantly worldwide and are undergoing constant innovations to improve monetary impulses in different segments of the economy.
Till the early 1990s, most of the financial markets in India were characterised by controls over the pricing of financial assets, restrictions on flows or transactions, barriers to entry, low liquidity and high transaction costs. These characteristics came in the way of development of the markets and allocative efficiency of resources channelled through them. From 1991 onward, wide-ranging financial market reforms have been implemented as a part of economic reforms measures.
Financial markets in India are getting increasingly integrated, domestically and globally. Reform measures in terms of free pricing, removal of barriers to flows and broad-based participation have yielded results in terms of fairly high degree of integration of the money market, the government securities market and the foreign exchange market, although in varying degrees.
Financial markets are at the core of the transmission mechanism of monetary policy. In India, financial markets have been developed with a specific emphasis on increasing allocative efficiency of resources and promoting financial stability.