Derivative instruments have been cautiously introduced in a phased manner, both for product diversity and, more importantly, as a risk management tool. All these developments have facilitated the process of price discovery in various financial market segments. There has been a significant increase in trading volumes and market liquidity (Table 8).
Illustratively, average daily turnover in the money market has increased from Rs.427 billion in 1997-98 to over Rs.888 billion by 2006-07. The operations under the liquidity adjustment facility (LAF) have largely been able to steer overnight rates within the corridor set by the policy rates.