money market instruments for IIBF Treasury Management Exam

Money market instruments are the short-term debt and funding tools that banks use to manage day-to-day liquidity, and they sit at the very heart of the IIBF Treasury Management exam. If you understand how money market instruments price, settle and interact with a bank's balance sheet, you have already cleared the toughest conceptual hurdle in treasury. In this guide we walk through call and notice money, treasury bills, commercial paper, certificates of deposit, repo, CBLO/TREPS, nostro/vostro accounts, forex treasury and the all-important ALM interface, in the exact framing the IIBF examiner expects. Use it alongside the structured practice on iibf.store mock tests.

What Are Money Market Instruments?

Money market instruments are negotiable financial instruments with an original maturity of up to one year, traded in a wholesale market where banks, primary dealers, mutual funds, corporates and the Reserve Bank of India meet to lend and borrow short-term funds. Because tenors are short and credit quality is generally high, these instruments are highly liquid and carry relatively low price risk — but they are extremely sensitive to changes in policy rates. The money market is the operating ground for the central bank's monetary policy, which is why the RBI conducts its liquidity operations here. For a treasury candidate, the key is to classify each instrument by issuer, tenor, whether it is secured or unsecured, and how it is settled. The main money market instruments you must master are: call and notice money, term money, treasury bills, commercial paper, certificates of deposit, repo and reverse repo, and the triparty repo product TREPS (which replaced CBLO). Each of these appears repeatedly in IIBF Treasury Management questions, often as a one-line definition or a tenor-matching item. Build your foundation with the certificate-aligned material on the CAIIB treasury course before attempting full-length papers.

Call, Notice and Term Money

The call money market is where banks borrow and lend funds for a single day (overnight) to square their daily reserve positions. When the borrowing is for a period of 2 to 14 days it is called notice money, and beyond 14 days up to one year it is term money. These are unsecured, inter-bank money market instruments, so participation is restricted mainly to scheduled commercial banks, cooperative banks and primary dealers — corporates and mutual funds cannot lend in the call market. The rate at which these trades happen, the weighted average call rate (WACR), is the operating target of RBI monetary policy, so the central bank keeps it anchored inside the policy corridor between the reverse repo (SDF) floor and the MSF ceiling. For the exam, remember that call money is the most liquid but also the most volatile of all money market instruments, because a temporary liquidity squeeze at quarter-end or on reporting Fridays can spike the call rate sharply. Treasury managers watch the call rate as an early-warning signal of system liquidity. Candidates frequently confuse the participants and tenor bands, so practise classification questions on timed mock tests and reinforce the rate-corridor logic using the live data on RBI policy rates.

T-Bills, Commercial Paper and Certificates of Deposit

Treasury bills (T-bills) are sovereign money market instruments issued by the Government of India through RBI at a discount to face value, in tenors of 91, 182 and 364 days. Being government-backed, they carry zero credit risk and are the benchmark for the short end of the yield curve. Commercial paper (CP) is an unsecured promissory note issued by highly rated corporates, primary dealers and large NBFCs to raise short-term working capital, with tenors from 7 days to one year. Certificates of deposit (CDs) are similar negotiable instruments but are issued by banks and select financial institutions against funds deposited with them. The crucial exam distinction is the issuer: T-bills are issued by the government, CP by corporates/NBFCs, and CD by banks/FIs — and all three are issued at a discount and redeemed at face value. Both CP and CD are governed by RBI directions and must be issued in dematerialised form. Treasury desks use these money market instruments to deploy surplus funds and to manage the maturity profile of the investment book. Because yields move inversely to price, a question may ask you to compute the discount or annualised yield, so be comfortable with the simple discount formula. Strengthen your numericals with the calculation-heavy sets at iibf.store practice tests and revise definitions quickly through the match-the-pairs game.

Repo, Reverse Repo, CBLO and TREPS

A repo (repurchase agreement) is a secured money market transaction in which one party sells securities and agrees to buy them back at a fixed price on a future date — effectively a collateralised loan. When the RBI is the lender it is the repo rate; when banks park surplus funds with the RBI it is reverse repo (now operationalised largely through the Standing Deposit Facility). The interest is the difference between the sale and repurchase price. CBLO (Collateralised Borrowing and Lending Obligation) was an anonymous, order-matched product run by CCIL that let non-bank entities access the secured money market; it has since been replaced by TREPS (Triparty Repo), where a triparty agent handles collateral selection, valuation and margining. TREPS is now the largest segment of the Indian money market by volume because mutual funds and other non-banks rely on it to lend secured overnight money. For the IIBF exam, anchor three points: repo and TREPS are secured (call money is not), TREPS replaced CBLO, and these instruments transmit RBI liquidity into the system. Keep up with operational and regulatory changes via IIBF news updates, and read RBI's own master directions on the RBI website for primary-source clarity.

Forex Treasury, Nostro/Vostro and the ALM Interface

A bank's treasury does not operate only in rupee money market instruments — it also runs a forex treasury that quotes exchange rates, manages the foreign currency funding gap and settles cross-border payments. Settlement runs through correspondent banking accounts: a nostro account is "our account with you" held in foreign currency abroad, while a vostro account is "your account with us" maintained in rupees for a foreign bank. Mismatches between nostro inflows and outflows create the same kind of short-term funding need that the domestic money market fills, which is why forex and rupee desks are managed together. All of this feeds into Asset-Liability Management (ALM): the treasury uses money market instruments to plug structural and dynamic liquidity gaps, to keep the Liquidity Coverage Ratio compliant, and to manage interest-rate sensitivity through the gap statement. The ALM interface is exactly where treasury theory meets balance-sheet reality, and the IIBF examiner loves questions that connect a liquidity gap to the choice of instrument used to fund it. Tie these threads together with full-length, exam-pattern papers on iibf.store and browse related explainers on the iibf.store blog.

Frequently Asked Questions

Mastering money market instruments is the surest way to convert raw study hours into marks on the IIBF Treasury Management exam, because almost every chapter — liquidity, interest-rate risk, forex and ALM — circles back to these short-term tools. Lock in the definitions, the issuer-tenor classifications and the secured-versus-unsecured distinction, then test yourself under real exam conditions. Start your focused revision now with the full-length practice papers at iibf.store mock tests and give yourself the repetition that turns understanding into a confident pass.