Instruments of the Money Market

The money market trades a specific set of short-term instruments, each suited to a different borrower and purpose:

• Treasury Bills (T-Bills) — short-term borrowing instruments issued by the Government of India (through the RBI) to meet its temporary cash requirements, issued for standard maturities of 91 days, 182 days, and 364 days. T-Bills are issued at a discount to their face value and redeemed at full face value on maturity, so the investor's return is the difference between the discounted purchase price and the face value received back. Because they are backed by the sovereign guarantee of the Government of India, T-Bills are widely considered the safest instrument in the entire money market — there is effectively no risk of default.
• Commercial Paper (CP) — an unsecured, short-term promissory note issued by large, financially sound companies (and some financial institutions) to raise working-capital funds directly from investors, rather than through a bank loan. Being unsecured, CP is issued only by highly creditworthy corporates carrying a good credit rating, and it typically carries a slightly higher return than a T-Bill to compensate investors for the (small but real) additional risk compared to a government-backed instrument.
• Certificate of Deposit (CD) — a short-term, unsecured, negotiable instrument issued by commercial banks (and certain financial institutions) in return for a deposit of funds for a fixed period, in effect a bank's own version of commercial paper. A CD is issued at a discount and, like a T-Bill, entitles the holder to the face value on maturity.
• Call Money / Notice Money — the market in which banks lend to and borrow from each other for extremely short periods to manage their day-to-day liquidity. Call money refers to funds borrowed/lent for one day (overnight), while notice money refers to funds borrowed/lent for a period beyond one day but up to 14 days. This is one of the most sensitive segments of the money market, since it is directly linked to how comfortable or tight overall bank liquidity is on any given day.
• Commercial Bills — a bill of exchange drawn by a seller on a buyer for the value of goods sold on credit, which the seller can then discount with a bank before its due date to get immediate cash rather than waiting for the buyer's payment. This is essentially the money market's channel for financing genuine trade credit between businesses. …