Integration of India’s Money Market : Intrest rate parity in India

Financial openness exists when residents of one country are able to trade assets with residents of another country, i.e. when financial assets are traded goods. A weak definition of complete financial openness, which one might refer to as financial integration, can be given as a situation in which the law of one price holds for financial assets- i.e. domestic and foreign residents trade identical assets at the same price. A strong definition would add to this the restriction that identically defined assets e.g. a six-month Treasury bill, issued in different political jurisdictions and
denominated in different currencies are perfect substitutes in all private portfolios. The degree of financial integration has important macroeconomic implications in terms of the effectiveness of fiscal and monetary policy in influencing aggregate demand as well as the scope for promoting investment in an economy