Financial Markets & Money Market Instruments – Complete JAIIB Notes 2026: T-Bills, CDs, CPs, Repo, LTRO + 50 MCQs

📅 Updated: September 2026 • 31 min read

📊 At a Glance — The Money Market Ladder

Call Money 1 day (overnight)

Notice Money 2 to 14 days

Term Money 15 days to 1 year

This article opens JAIIB's largest module — Financial Products & Services — starting with market fundamentals and the short-term ("money market") instruments banks use every single business day to manage liquidity.

1 What is a Financial Market?

🏛️

Where Savers Meet Borrowers

A Financial Market is a marketplace — physical or electronic — where buyers and sellers trade financial assets: currencies, securities, deposits, loans and derivatives. Its core economic role is to channel surplus funds from savers (households, institutions) to deficit units (businesses, governments) that need capital, at a price (interest rate/return) set by the market.

2 Evolution & Segments of Financial Markets

India's financial markets evolved from informal moneylending and merchant banking, through the establishment of the Bombay Stock Exchange (1875) — Asia's oldest stock exchange — to a modern, electronically-traded, multi-segment system deepened dramatically after the 1991 liberalisation reforms and the 1992 launch of the NSE's screen-based trading.

Key Segments

💵

Money Market

Short-term instruments, maturity up to 1 year (Call Money, T-Bills, CDs, CPs, Repo).

📈

Capital Market

Long-term instruments — equity and debt/bond markets (covered in our next guides).

💱

Forex Market

Trading of currencies.

🎲

Derivatives Market

Forwards, futures, options and swaps, deriving value from an underlying asset.

3 Functions of Financial Markets & Price Discovery

🏦

Mobilising Savings

Channels household/institutional savings into productive investment.

💧

Providing Liquidity

Lets investors convert assets to cash quickly, encouraging participation.

⚖️

Risk Transfer

Derivatives and insurance-linked markets let participants transfer/hedge risk.

📉

Reducing Transaction Costs

Organised markets lower the search/negotiation costs of matching buyers and sellers.

Price Discovery

Price discovery is the process by which the market determines the fair price of an asset through the continuous interaction of buy and sell orders (supply and demand) — the single most important function of any well-functioning market, since every other financial decision (investment, lending, hedging) relies on a credible, market-determined price.

4 Call, Notice & Term Money

The interbank money market — where banks lend/borrow surplus/deficit funds among themselves — operates in three tenors:

Market	Tenor	Nature
Call Money	Overnight (1 day)	Unsecured interbank borrowing/lending, repayable on demand
Notice Money	2 to 14 days	Unsecured, with notice given before recall/repayment
Term Money	15 days to 1 year	Unsecured, fixed-tenor interbank borrowing

JAIIB tip: The Call Money market is where a bank facing a temporary end-of-day cash shortfall typically turns first — its rate (the "call rate") is one of the most closely watched short-term indicators of banking-system liquidity, and tends to stay close to the RBI's LAF corridor.

5 Treasury Bills (T-Bills)

📜

The Government's Short-Term IOU

Treasury Bills are short-term Government of India securities, issued at a discount to face value and redeemed at par — the difference being the investor's return (no separate coupon/interest payment).

91️⃣

91-Day T-Bill

Shortest tenor.

1️⃣8️⃣2️⃣

182-Day T-Bill

Medium tenor.

3️⃣6️⃣4️⃣

364-Day T-Bill

Longest money-market tenor.

T-Bills are issued through weekly RBI auctions on behalf of the government, are virtually risk-free (sovereign credit), and serve as a key benchmark for other money-market instrument pricing.

6 Certificates of Deposit (CDs)

A Certificate of Deposit is a negotiable, unsecured money-market instrument issued by banks and select financial institutions, in dematerialised form, at a discount to face value, evidencing a deposit placed with the issuer for a fixed tenor.

Issuer	Tenor
Banks	7 days to 1 year
Select All-India Financial Institutions	1 to 3 years

JAIIB tip: CDs are negotiable — a holder can sell/transfer a CD before maturity in the secondary market — a key distinguishing feature from an ordinary, non-transferable fixed deposit.

7 Commercial Paper (CP)

Commercial Paper is an unsecured, short-term promissory note issued by highly-rated corporates, primary dealers and financial institutions to raise working-capital funds directly from the money market — typically cheaper than a bank cash-credit facility for a strong-rated borrower.

🏢

Eligible Issuers

Corporates, Primary Dealers, All-India Financial Institutions meeting RBI eligibility norms.

⭐

Mandatory Credit Rating

Must carry a minimum specified credit rating from a SEBI-registered Credit Rating Agency.

📅

Tenor

7 days to 1 year.

JAIIB tip: CD (bank-issued) and CP (corporate-issued) are structurally similar — both unsecured, discount instruments — but the issuer type is the key exam differentiator.

8 Repo & Tri-Party Repo

A Repo (Repurchase Agreement) is a short-term, collateralised borrowing transaction — the borrower sells securities (typically G-Secs) to the lender with an agreement to repurchase them at a specified future date and price, the difference representing interest. (See our RBI & Monetary Policy guide for the policy repo rate specifically.)

Tri-Party Repo

In a Tri-Party Repo, a third-party agent — in India, the Clearing Corporation of India Limited (CCIL) — sits between the borrower and lender, handling collateral selection, valuation, settlement and substitution. This reduces counterparty risk and operational burden, and is traded on CCIL's TREPS (Tri-Party Repo Dealing System) platform — today the dominant venue for short-term secured interbank borrowing/lending in India, alongside the traditional Call Money market.

9 Bill Rediscounting Scheme (BRDS) & Long-Term Repo Operations (LTRO)

Bill Rediscounting Scheme (BRDS)

Under BRDS, a bank that has already discounted a genuine trade bill for a customer can rediscount that bill with another bank, an approved financial institution, or RBI — raising fresh liquidity against a bill it is already holding, without waiting for the bill's original maturity.

Long-Term Repo Operations (LTRO)

Feb 2020LTRO introduced

RBI introduced LTRO in February 2020 to inject durable liquidity into the banking system for tenors of 1 to 3 years, at the prevailing repo rate — longer than the overnight/short-term LAF window — aimed at improving monetary policy transmission and supporting bank lending, and used prominently as a stress-liquidity tool during the COVID-19 period.

JAIIB tip: LTRO's defining feature versus ordinary repo is tenor — 1-3 years of durable liquidity versus the LAF's overnight/short-term operations.

✓ Key Takeaways

A Financial Market channels funds from savers to borrowers, with price discovery as its core function.
Markets segment into Money, Capital, Forex and Derivatives markets.
The interbank money market ladder: Call (1 day) → Notice (2-14 days) → Term (15 days-1 year).
T-Bills (91/182/364-day, sovereign, discount instruments), CDs (bank-issued, negotiable) and CP (corporate-issued, rated, unsecured) are the core discount money-market instruments.
Tri-Party Repo (TREPS), intermediated by CCIL, is today's dominant secured short-term interbank market.
BRDS lets banks rediscount already-discounted trade bills; LTRO (Feb 2020) injects 1-3-year durable liquidity at the repo rate.

📝 Top 50 JAIIB-Style MCQs on Financial Markets & Money Market Instruments

Test your understanding with these 50 practice MCQs, closely modelled on the JAIIB (IE & IFS) exam pattern. Each question has 5 options — the correct answer is hidden by default; tap "Show Answer" to reveal it along with a short explanation.

🏛️ What is a Financial Market?

1 The core economic role of a financial market is to:

A. Print currency

B. Channel funds from savers to borrowers/users of capital

C. Regulate insurance companies

D. Fix the fiscal deficit

E. Collect income tax

Answer: B. Financial markets channel funds from savers to borrowers.

2 India's oldest stock exchange, established in 1875, is:

A. NSE

B. BSE

C. MCX

D. Calcutta Stock Exchange

E. Metropolitan Stock Exchange

Answer: B. BSE (1875) is Asia's oldest stock exchange.

📊 Evolution & Segments

3 Screen-based electronic trading was pioneered in India by:

A. BSE in 1875

B. NSE from 1992

C. RBI in 1935

D. SEBI in 1988

E. CCIL

Answer: B. NSE pioneered screen-based trading from 1992.

4 Instruments with maturity up to one year fall under the:

A. Capital Market

B. Money Market

C. Derivatives Market

D. Forex Market only

E. Insurance Market

Answer: B. Up-to-1-year instruments belong to the money market.

5 Trading of currencies takes place in the:

A. Money market

B. Forex market

C. Derivatives market only

D. Insurance market

E. Credit rating market

Answer: B. Currency trading occurs in the forex market.

⚙️ Functions & Price Discovery

6 "Price Discovery" refers to:

A. The government fixing all asset prices by law

B. The market determining an asset's fair price through the interaction of demand and supply

C. A one-time price set at an asset's issue and never changed

D. A tax computation method

E. A method of calculating GDP

Answer: B. Price discovery is market-determined pricing via demand-supply interaction.

7 Which function allows investors to convert their financial assets into cash relatively easily?

A. Risk transfer

B. Liquidity provision

C. Price discovery

D. Taxation

E. Currency issuance

Answer: B. Liquidity provision lets assets be converted to cash easily.

📞 Call, Notice & Term Money

8 Call Money has a tenor of:

A. 1 day (overnight)

B. 2 to 14 days

C. 15 days to 1 year

D. 1 to 3 years

E. Over 5 years

Answer: A. Call Money is overnight.

9 Notice Money has a tenor of:

A. 1 day

B. 2 to 14 days

C. 15 days to 1 year

D. 1 to 3 years

E. Over 10 years

Answer: B. Notice Money spans 2 to 14 days.

10 Term Money has a tenor of:

A. 1 day

B. 2 to 14 days

C. 15 days to 1 year

D. Over 5 years

E. Exactly 30 days only

Answer: C. Term Money runs from 15 days up to 1 year.

11 Call, Notice and Term Money transactions are typically:

A. Secured by collateral

B. Unsecured interbank borrowing/lending

C. Only available to retail customers

D. Traded on the stock exchange

E. Government-guaranteed

Answer: B. These are unsecured interbank instruments.

📜 Treasury Bills

12 Treasury Bills are issued by:

A. Private corporates

B. The Government of India

C. Individual banks independently

D. NBFCs only

E. Foreign governments

Answer: B. T-Bills are Government of India securities.

13 T-Bills are issued at:

A. A premium to face value

B. A discount to face value, redeemed at par

C. Exactly face value, with a coupon

D. A fixed 10% markup

E. Zero value

Answer: B. T-Bills are discount instruments, redeemed at par.

14 Which of the following is NOT a standard T-Bill tenor?

A. 91 days

B. 182 days

C. 364 days

D. 730 days

E. All are standard tenors except one

Answer: D. 730 days is not a standard T-Bill tenor (standard are 91/182/364 days).

15 T-Bills are issued to investors through:

A. Weekly RBI auctions

B. Direct retail counter sales at banks only

C. Insurance companies exclusively

D. SEBI's IPO process

E. Barter exchange

Answer: A. T-Bills are issued via weekly RBI auctions.

🏦 Certificates of Deposit

16 A Certificate of Deposit (CD) can be issued by:

A. Only individuals

B. Banks and select financial institutions

C. Only foreign governments

D. Only insurance companies

E. Only the Government of India

Answer: B. CDs are issued by banks and select FIs.

17 A key feature that distinguishes a CD from an ordinary fixed deposit is that a CD is:

A. Non-transferable

B. Negotiable — it can be sold/transferred before maturity

C. Only available for 10 years

D. Issued only to the government

E. Interest-free by law

Answer: B. CDs are negotiable/transferable, unlike ordinary FDs.

18 Bank-issued CDs have a tenor of:

A. 1 day only

B. 7 days to 1 year

C. 5 to 10 years

D. Exactly 3 years

E. Perpetual

Answer: B. Bank CDs run 7 days to 1 year.

📝 Commercial Paper

19 Commercial Paper (CP) is best described as:

A. A secured long-term bond

B. An unsecured, short-term promissory note issued by rated corporates/FIs

C. A government-issued currency note

D. An insurance policy

E. A type of savings account

Answer: B. CP is an unsecured, short-term promissory note.

20 A precondition for a corporate to issue CP is:

A. No conditions at all

B. A minimum specified credit rating from a SEBI-registered rating agency

C. Being a public sector company only

D. Being listed on a foreign exchange

E. Government ownership

Answer: B. CP issuers need a minimum credit rating.

21 The typical tenor range for Commercial Paper is:

A. 7 days to 1 year

B. 1 day only

C. 5 to 10 years

D. 20 to 30 years

E. Perpetual

Answer: A. CP runs 7 days to 1 year, like bank CDs.

22 The main difference between a CD and CP is the:

A. Type of issuer (bank/FI vs corporate/PD)

B. Currency used

C. Country of issue

D. There is no difference at all

E. Only the font used on the certificate

Answer: A. Issuer type distinguishes CD (banks/FIs) from CP (corporates/PDs/FIs).

🔄 Repo & Tri-Party Repo

23 A Repo transaction is fundamentally:

A. An unsecured personal loan

B. A short-term, collateralised borrowing transaction against securities

C. A type of insurance product

D. A stock market IPO

E. A currency swap

Answer: B. Repo is a short-term, collateralised borrowing transaction.

24 In a Tri-Party Repo, the third party that intermediates the transaction in India is:

A. SEBI

B. CCIL (Clearing Corporation of India Limited)

C. IRDAI

D. NABARD

E. PFRDA

Answer: B. CCIL is the tri-party agent in India.

25 CCIL's platform for tri-party repo trading is called:

A. NDS-OM

B. TREPS

C. RTGS

D. NEFT

E. CBLO (still active and unrelated)

Answer: B. TREPS is CCIL's Tri-Party Repo Dealing System.

26 A key benefit of Tri-Party Repo over a bilateral repo is:

A. Higher counterparty risk

B. Reduced counterparty risk and lower operational burden via the intermediary

C. No collateral is required at all

D. It is available only to retail investors

E. It eliminates the need for RBI oversight

Answer: B. The intermediary reduces counterparty risk and operational burden.

📋 BRDS & LTRO

27 Under the Bill Rediscounting Scheme (BRDS), a bank rediscounts:

A. A bill it has never seen before

B. A genuine trade bill it has already discounted for a customer

C. Government bonds only

D. Equity shares

E. Insurance policies

Answer: B. BRDS rediscounts an already-discounted genuine trade bill.

28 Under BRDS, a bank can rediscount a bill with:

A. Only its own branches

B. Another bank, an approved financial institution, or RBI

C. Only foreign governments

D. Only retail customers

E. Only insurance companies

Answer: B. Rediscounting can occur with another bank, an approved FI, or RBI.

29 RBI introduced Long-Term Repo Operations (LTRO) in:

A. 2011

B. February 2020

C. 2004

D. 1998

E. 2022

Answer: B. LTRO was introduced in February 2020.

30 LTRO injects liquidity for a tenor of:

A. Overnight only

B. 1 to 3 years

C. 10 to 20 years

D. 91 days only

E. 5 to 10 years

Answer: B. LTRO provides 1-3-year durable liquidity.

31 LTRO funds are provided by RBI to banks at:

A. A punitive penal rate

B. The prevailing repo rate

C. Zero interest always

D. The SLR rate

E. A rate fixed by the Finance Ministry

Answer: B. LTRO funds are provided at the repo rate.

32 LTRO was prominently used as a liquidity tool during:

A. The 1991 BoP crisis

B. The COVID-19 pandemic period

C. The 1997 Asian crisis

D. Demonetisation (2016)

E. The 1965 Indo-Pak war

Answer: B. LTRO was prominently used during COVID-19.

🧩 Mixed / Comprehensive

33 Which of the following is the correct order of money-market interbank tenors, shortest to longest?

A. Term → Notice → Call

B. Call → Notice → Term

C. Notice → Call → Term

D. All three have identical tenors

E. Term → Call → Notice

Answer: B. Call (1 day) → Notice (2-14 days) → Term (15 days-1 year).

34 Which of these money-market instruments carries sovereign (government) credit risk only?

A. Commercial Paper

B. Treasury Bills

C. Certificate of Deposit

D. Call Money

E. Tri-Party Repo

Answer: B. T-Bills are sovereign (Government of India) instruments.

35 Both CDs and CPs share which common structural feature?

A. Both are secured by collateral

B. Both are unsecured, discount-priced instruments

C. Both are issued only by the government

D. Both have tenors exceeding 10 years

E. Both pay a fixed coupon rather than being discount instruments

Answer: B. Both CDs and CPs are unsecured, discount-priced money-market instruments.

36 A corporate with a strong credit rating might prefer issuing CP over drawing a bank cash-credit facility because CP is typically:

A. More expensive

B. Cheaper for a well-rated borrower, tapping the market directly

C. Available only to loss-making companies

D. Impossible to redeem

E. Regulated by IRDAI

Answer: B. CP often offers cheaper funding for well-rated corporates than bank credit.

37 Which market segment would house a company's fresh equity IPO?

A. Money market

B. Capital market (primary segment)

C. Forex market

D. Call money market

E. Bill rediscounting market

Answer: B. An IPO belongs to the capital market's primary segment.

38 The rate at which banks lend/borrow in the Call Money market is closely watched because it reflects:

A. Long-term GDP growth

B. Short-term banking-system liquidity conditions

C. The fiscal deficit

D. Insurance penetration

E. Foreign trade policy

Answer: B. The call rate reflects short-term system liquidity.

39 Which instrument would a bank most likely use to raise quick funds against a trade bill it already holds, without waiting for the bill's maturity?

A. Treasury Bill purchase

B. Bill Rediscounting Scheme (BRDS)

C. Equity IPO

D. Insurance claim

E. REIT unit purchase

Answer: B. BRDS lets banks rediscount an already-discounted bill for quick funds.

40 Which of the following instruments would NOT typically be classified as a money-market instrument?

A. 91-day Treasury Bill

B. A 20-year Government Security (dated G-Sec)

C. Certificate of Deposit

D. Commercial Paper

E. Call Money

Answer: B. A 20-year G-Sec is a capital-market (bond market) instrument, not money market.

41 Which of the following best distinguishes Notice Money from Term Money?

A. Notice Money is 2-14 days; Term Money is 15 days to 1 year

B. Notice Money always exceeds 1 year

C. Term Money is always overnight

D. They are identical in every respect

E. Notice Money is secured; Term Money is unsecured

Answer: A. This correctly states their tenor distinction.

42 A minimum investment denomination requirement is a feature typically associated with:

A. Only equity shares

B. Money-market instruments like CDs and CPs (often ₹5 lakh and multiples thereof)

C. Only insurance policies

D. Only REITs

E. Only mutual funds

Answer: B. CDs/CPs typically carry a minimum denomination (e.g., ₹5 lakh).

43 Which of the following is true about the relationship between T-Bill yields and their price?

A. Yield and price move in the same direction

B. Yield and price move inversely — a higher discount (lower price) implies a higher yield

C. Yield has no relationship with price

D. T-Bills always yield 0%

E. Price is irrelevant to T-Bills

Answer: B. T-Bill price and yield move inversely, like other discount instruments.

44 Which entity plays a central clearing/settlement role across India's money and government securities markets?

A. IRDAI

B. CCIL

C. PFRDA

D. NABARD

E. SIDBI

Answer: B. CCIL is the key clearing/settlement institution for these markets.

45 Why might RBI prefer to inject liquidity via LTRO rather than only through overnight repo, during a period of banking-sector stress?

A. LTRO provides more durable, predictable liquidity over 1-3 years, supporting sustained lending

B. LTRO has no effect on liquidity at all

C. LTRO is only available to individual retail customers

D. LTRO replaces the need for CRR entirely

E. LTRO abolishes the repo rate

Answer: A. LTRO's longer tenor gives banks more durable, predictable liquidity.

46 Which of the following best reflects the "evolution" theme of Indian financial markets since 1991?

A. Markets became less regulated and less liquid

B. Liberalisation, electronic trading and new instruments deepened market participation and liquidity

C. All markets were shut down after 1991

D. Only the money market existed before 1991

E. No change occurred after 1991

Answer: B. Post-1991 reforms deepened and modernised Indian financial markets.

47 A bank wanting to invest short-term surplus funds securely against government collateral, intermediated by CCIL, would use:

A. Unsecured Call Money only

B. Tri-Party Repo (TREPS)

C. Equity shares

D. A life insurance policy

E. A REIT unit

Answer: B. Tri-Party Repo/TREPS fits this description.

48 Which of the following money-market instruments is most directly linked to a bank's own trade-finance/bill-discounting business?

A. Treasury Bills

B. Bill Rediscounting Scheme (BRDS)

C. Certificate of Deposit

D. Commercial Paper

E. LTRO

Answer: B. BRDS is tied directly to a bank's own bill-discounting business.

49 Which of the following would generally NOT be an eligible issuer of Commercial Paper?

A. A highly-rated large corporate

B. A Primary Dealer

C. An eligible All-India Financial Institution

D. An unrated shell company with no credit history

E. A well-rated NBFC meeting RBI norms

Answer: D. An unrated entity cannot meet CP's mandatory rating requirement.

50 Overall, which statement best summarises the role of money-market instruments in the banking system?

A. They are irrelevant to day-to-day bank operations

B. They are the primary tools banks and institutions use to manage very short-term liquidity, funding and investment needs

C. They exist only for retail savers

D. They replace the need for capital markets entirely

E. They are used exclusively for long-term infrastructure funding

Answer: B. Money-market instruments are the core short-term liquidity management tools for banks/institutions.

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Disclaimer: This article is prepared for educational and exam-preparation purposes only, summarising money-market structures and instruments as of September 2026. Candidates should cross-check the latest official IIBF syllabus and RBI's current money-market guidelines before the exam.