IRJC International Journal of Marketing, Financial Services & Management Research Vol.1 Issue 9, September 2012, ISSN 2277 3622 www.indianresearchjournals.com 142 ROLE OF MONEY MARKET IN CONTEXT TO GROWTH OF INDIAN ECONOMY NEHA PURI* *Assistant Professor, Amity College of Commerce & Finance, Amity Universtiy, Noida. 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. KEYWORDS: Financial sector, financial innovation, financial markets and money market. ______________________________________________________________________ 1. INTRODUCTION Financial openness is often regarded as providing important potential benefits. Access to money markets expands investors’ opportunities for a potential for achieving higher risk- adjusted rates of return. It also allows countries to borrow to smooth consumption in the face of adverse shocks, the potential growth and welfare gains resulting from such international risk sharing can be large (Obstfeld, 1994). It has also been argued that by increasing the rewards of good policies and the penalties for bad policies, free flow of capital across borders may induce countries to follow more disciplined macroeconomic policies that translate into greater macroeconomic stability. An increasingly common argument in favour of financial openness is that it may increase the depth and breadth of domestic financial markets and lead to an increase in financial intermediation process by lowering costs and “excessive” profits associated with monopolistic or cartelized markets, thereby lowering the cost of investment and improving resource allocation. Organized financial markets have existed in India for more than a century. Today, markets of varying maturity exist in equity, debt, commodities and foreign exchange. There are 25 stock markets all over the country, the most important of which, are the Bombay Stock Exchange