Financial Management and Business Data Analytics · Money Market

Treasury Bills, Call Money, Repo and Reverse Repo

Updated 10 October 2026 · Fact-checked

Treasury Bills are zero-coupon short-term government securities issued at a discount and repaid at face value (91, 182 and 364 days). Call money is overnight, notice money is 2 to 14 days, term money is over 14 days. Repo is borrowing against securities; reverse repo is lending. Yield = (Face − Price) ÷ Price × 365 ÷ days.

Understand Money Market Instruments: Treasury Bills and Call Money

The money market is where banks, institutions and the government borrow and lend for up to one year. Its instruments are safe, liquid and short term. This topic covers the main ones used for government borrowing and for banks' daily liquidity.

Treasury Bills (T-bills) are issued by the Government of India through the RBI. They carry no coupon. You buy at a discount to face value and get the face value on maturity. The gain is the difference. They have practically no default risk. Regular T-bills are of 91 days, 182 days and 364 days. They are sold by auction. Check your study material for the minimum bid amount, as it is set by RBI auction norms and can change. Cash management bills are another, irregular, short-dated type issued for temporary cash needs.

Call, notice and term money is the market for unsecured funds, based on the period of the loan. It is traded by banks and primary dealers, not banks alone. Call money is borrowed or lent for one day (overnight). Notice money is for more than one day and up to 14 days. Term money is for more than 14 days. Banks use it to meet reserve needs and daily mismatches. The interest rate is set by demand and supply.

Repo (repurchase agreement) is a secured short-term borrowing. One party sells securities and agrees to buy them back at a higher price on a fixed date. The difference is the interest. The borrower of cash sees a repo. The lender of cash sees a reverse repo. In India, the RBI's liquidity adjustment facility (LAF) uses the repo rate when it lends to banks and the reverse repo rate when it absorbs liquidity from banks. The policy structure has changed over time: the Standing Deposit Facility (SDF), not the reverse repo, is currently the floor of the LAF corridor. Check your study material for the current policy rates, since they change.

Key rules to remember

T-bill discount: Discount = Face value − Issue price; The investor's total earning, as no interest is paid.
T-bill yield (annualised): Yield = [(Face value − Price) ÷ Price] × [365 ÷ Days to maturity] × 100; Divide by price, not face value. Use 365 days unless the question says otherwise.
Discount rate (bank discount): Discount rate = [(Face value − Price) ÷ Face value] × [365 ÷ Days] × 100; Divides by face value, so it is lower than the yield.
Price from yield: Price = Face value ÷ [1 + Yield × Days ÷ 365]; Use the yield as a decimal.
Repo interest: Interest = Amount × Rate × Days ÷ 365; Repurchase price = Sale price + interest.
Call, notice, term money: Call = 1 day; Notice = 2 to 14 days; Term = over 14 days; Classification is by period of the loan. All are unsecured and traded by banks and primary dealers.

How to solve Money Market Instruments: Treasury Bills and Call Money questions

Use this approach for any numerical or theory question on T-bills, interbank money and repos.

1Identify the instrument: T-bill, call, notice, term money, repo or reverse repo.
2Note the face value, price or rate, and the number of days.
3For theory, state the issuer, tenor, security and pricing basis.
4Pick the formula: yield (divide by price) or discount rate (divide by face value).
5Calculate the gain first (Face − Price), then annualise by 365 ÷ days.
6For repo, compute interest on the cash amount, then add it to get the repurchase price.
7State who is the lender and who is the borrower of cash, and write the final answer with units (₹ or %).

Quickest way: Three-line T-bill and repo check

When to use it: Use for MCQs on yield, price or repo interest.

Gain = Face − Price.
Yield = Gain ÷ Price × 365 ÷ days; for discount rate swap Price for Face.
For repo: interest = cash × rate × days ÷ 365, repurchase price = cash + interest.
Sanity check: yield must be above the discount rate.

Common mistakes in Money Market Instruments: Treasury Bills and Call Money

Dividing the discount by face value when asked for yield.
Students mix up discount rate and yield.
Fix: Yield uses the price paid as the base. Discount rate uses face value.
Saying T-bills pay periodic interest.
They are confused with dated government securities.
Fix: T-bills are zero-coupon. The return is only the discount.
Classifying a 7-day loan as call money.
Students remember only that call money is short term.
Fix: Call = 1 day, notice = 2 to 14 days, term = over 14 days.
Treating the seller of securities in a repo as the lender of cash.
The viewpoint is not fixed.
Fix: The seller of securities in a repo borrows cash. The buyer lends. Reverse it for reverse repo.
Using 360 days or the wrong tenor.
Habit from other interest problems.
Fix: Use 365 days unless the question specifies otherwise, and use the actual tenor of the bill.

Worked examples

Example 1

A 91-day Treasury Bill of face value ₹1,00,000 is issued at ₹98,500. Calculate the yield and the discount rate (365-day basis), correct to two decimals.

Show the solution

Gain = 1,00,000 − 98,500 = ₹1,500.
Yield = (1,500 ÷ 98,500) × (365 ÷ 91) × 100.
1,500 ÷ 98,500 = 0.015228. 365 ÷ 91 = 4.010989.
Yield = 0.015228 × 4.010989 × 100 = 6.11%.
Discount rate = (1,500 ÷ 1,00,000) × 4.010989 × 100 = 6.02%.

Answer: Yield is about 6.11% a year and discount rate about 6.02% a year.

Example 2

A bank sells securities worth ₹5,00,00,000 under a repo for 7 days at a repo rate of 6.5% a year. Find the repurchase price and say who is the borrower.

Show the solution

Interest = 5,00,00,000 × 6.5% × 7 ÷ 365.
5,00,00,000 × 0.065 = ₹32,50,000 a year.
× 7 ÷ 365 = 32,50,000 × 0.019178 = ₹62,329 (approx).
Repurchase price = 5,00,00,000 + 62,329 = ₹5,00,62,329.
The selling bank receives cash now, so it is the borrower. The counterparty is the lender and, from its side, the deal is a reverse repo.

Answer: Repurchase price is about ₹5,00,62,329. The selling bank is the borrower of cash.

Exam tips

In MCQs, check the base: price for yield, face value for discount rate.
Memorise the call, notice and term money periods exactly. They are a common MCQ.
For written answers, tabulate T-bills (91, 182, 364 days) with features like zero coupon, auction and issue by the Government through the RBI.
In repo questions, say clearly who borrows and who lends, then show the interest working.
Keep four decimals in intermediate steps and round only the final answer.

Practice questions from Money Market

Money Market Instruments: Treasury Bills and Call Money 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 Instruments: Treasury Bills and Call Money: frequently asked questions

What are the types of Treasury Bills?

Regular T-bills are of 91, 182 and 364 days. Cash management bills are also issued for short, temporary needs. All are zero-coupon and issued at a discount.

What is the difference between call money, notice money and term money?

Call money is for one day. Notice money is for 2 to 14 days. Term money is for more than 14 days. All are unsecured borrowing, traded by banks and primary dealers.

What is the difference between repo and reverse repo?

In a repo, you sell securities and agree to buy them back, so you borrow cash. In a reverse repo, you buy securities with an agreement to sell them back, so you lend cash. They are two sides of the same deal.

Is T-bill yield the same as discount rate?

No. Yield divides the gain by the price paid. Discount rate divides it by face value. For the same bill, the yield is higher than the discount rate because the price is below face value.