CMA Intermediate · Financial Management and Business Data Analytics
Money Market Chapter for CMA Inter Paper 11
The money market is the market for short-term borrowing and lending, usually up to one year. Banks, institutions and the government use it to manage liquidity. To solve questions, learn each instrument's issuer, buyer, tenor and pricing, then compare them. Practise the discount-yield calculation for treasury bills.
What this chapter covers
This chapter covers the market where short-term funds change hands. You study its meaning and features, who takes part, and the instruments traded: treasury bills, call money, commercial paper, certificates of deposit, commercial bills and money market mutual funds.
Most of the chapter is descriptive. Examiners ask you to define, list features, distinguish between instruments or explain the role of a participant. A small numerical part may appear, mainly discount pricing and the yield on a discounted instrument.
It connects to the rest of Paper 11 in two ways. Short-term funds link to working capital and the sources of short-term finance. The idea of interest rates and liquidity also supports the study of the capital market and the cost of funds. If you understand the money market well, those chapters become easier.
This chapter is compact, mostly conceptual and easy to score in both the 2-mark MCQs of Section A and the written answers. Questions often ask you to tell instruments apart, so a clear comparison table in your own notes gets you marks quickly. Because there is no negative marking, you can attempt every MCQ. A day or two of focused study can secure marks that need far more effort in numerical chapters.
Money Market: topics in the order to study them
- 1Money Market Meaning, Features and FunctionsStart here because every later topic builds on what the money market is and why it exists.
- 2Structure and Participants of Indian Money MarketOnce you know the purpose, learn who operates in it, so instruments make sense as tools used by these players.
- 3Money Market Instruments: Treasury Bills and Call MoneyThese are the core government and interbank instruments, and they carry the main calculation, so learn them before the others.
- 4Commercial Paper, Certificates of Deposit and Commercial BillsThese are corporate and bank instruments. They are easier once you have seen the discount pricing used for treasury bills.
- 5Money Market Mutual Funds and Other InstrumentsFinish with the funds and the remaining instruments, which let retail and institutional investors reach the market and which you can compare with everything before.
How to prepare Money Market
Treat this as a comparison chapter. Your aim is to recall facts quickly and to explain differences clearly in writing.
- Read the meaning and features once and write a three-line definition in your own words. Include short-term, high liquidity and low risk.
- Draw a simple map of the Indian money market showing the regulator, the main participants and the instruments each one uses.
- Build a comparison table with one row per instrument. Add columns for issuer, investor, tenor, how it is priced and whether it is traded.
- Practise the treasury bill discount calculation until you can do it without notes. Work out the price from the discount rate, then the yield from the price. Check every step.
- Write short answers on call money, commercial paper, certificates of deposit and money market mutual funds. Use a definition, two or three features and one point of difference from a similar instrument.
- Attempt MCQs on each topic after you finish it. Note which instruments you confuse and revisit those rows of your table.
- Revise the table and your definitions the day before the exam. Check current limits and rates in your ICMAI study material, since they can change.
Common mistakes in Money Market
Mixing up commercial paper and certificates of deposit.
Fix: Remember the issuer: companies issue commercial paper and banks issue certificates of deposit. Keep this as the first column of your table.
Applying the discount rate to the face value and calling it the yield.
Fix: Compute the price first, then divide the gain by the price paid. Write both steps in the answer.
Writing general points about the capital market instead of the money market.
Fix: Tie every point to short tenor and liquidity. State the contrast with long-term funds only when the question asks for it.
Giving a list of features with no explanation.
Fix: Add one line to each feature saying why it matters to a borrower or investor, which earns more marks in a written answer.
Quoting limits, rates or tenors from memory without checking them.
Fix: Use the latest ICMAI study material for any figure and write only what you are sure of.
Skipping the participants topic because it looks like a plain list.
Fix: Learn who deals in what. MCQs often ask which participant uses which instrument.
Last-day revision: Money Market
- The money market deals in short-term funds, generally up to one year.
- Its main purpose is to help participants manage liquidity.
- Money market instruments are generally highly liquid and carry lower risk than long-term securities.
- Treasury bills are issued by the government to meet short-term borrowing needs.
- Treasury bills are issued at a discount and redeemed at face value.
- Call money is very short-term interbank lending, mainly overnight.
- Commercial paper is an unsecured short-term note issued by creditworthy companies.
- Certificates of deposit are issued by banks against deposits for a fixed period.
- Commercial bills arise from trade transactions and can be discounted for funds.
- Money market mutual funds pool investors' money to invest in money market instruments.
- Discount instruments: yield is measured on the price paid, not on the face value.
- Compare instruments on issuer, investor, tenor and pricing.
Money Market practice questions
- Meridian Textiles Ltd issues 90-day commercial paper with a face value of ₹1,00,00,000 at a discount, so that the investor earns a simple an…
- Which statement about Treasury Bills in the Indian money market is correct?
- A certificate of deposit of face value Rs 10,00,000 is issued by a bank for 180 days at a discount rate that gives a price of Rs 9,50,000. W…
- A mutual fund analyst compares a 91-day Treasury Bill with a 91-day Certificate of Deposit. The T-bill, face value Rs 100, is issued at Rs 9…
- Aarav Traders buys a 91-day Treasury Bill with face value Rs 1,00,000 at a price of Rs 98,200. Using a 365-day year, the annualised effectiv…
- Kaveri Pharma issues 182-day commercial paper of face value ₹10,00,000 at a price of ₹9,50,000. Using a 365-day year, the effective simple a…
- Sundaram Industries issues commercial paper of face value Rs 5,00,000 for 90 days at a discount of Rs 12,000, so it receives Rs 4,88,000. Ig…
- Which feature distinguishes money market instruments from capital market instruments?
Money Market in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Money Market: frequently asked questions
Is the Money Market chapter theory or numerical?
It is mostly theory. Expect definitions, features, differences between instruments and the role of participants. A small calculation on discounted instruments such as treasury bills is possible, so practise it.
Which Paper does the Money Market chapter belong to?
It is part of Paper 11, Financial Management and Business Data Analytics, in Group II of CMA Intermediate. Group II is examined with Papers 9, 10 and 12.
How long does this chapter take to prepare?
Because it is short and conceptual, most students can finish a first pass in a few study sessions. Spend extra time on the comparison table and on timed MCQ practice.
Can I answer MCQs by guessing in this chapter?
There is no negative marking, so you should attempt every MCQ. Still, learning the issuer and tenor of each instrument lets you eliminate wrong options and raise your chance of getting them right.