12th Standard Commerce — Money Market Online Test
Chapter 6 of 12th Commerce explains the money market, the market for short-term funds with maturities up to one year. It covers definitions by Crowther and the RBI, objectives and characteristics, differences from the capital market, participants, and instruments such as treasury bills, certificates of deposit, commercial bills and gilt-edged securities.
Study this chapter
About Money Market
Medium ~45 min study
Money Market is the sixth chapter of the Tamil Nadu State Board Class 12 Commerce book and the second lesson of Unit 2, Financial Markets. It opens with Thirukkural couplet 31 on virtue and wealth and then defines the money market as the segment of financial markets in which instruments with maturities of less than one year are traded.
The lesson lists the objectives and twelve characteristics of a money market, sets out a fifteen-point comparison with the capital market, names the participants, and then describes the main instruments: treasury bills, certificates of deposit, commercial bills and government or gilt-edged securities.
This page gives the five printed one mark questions of the book exercise with answers checked against the lesson, followed by additional questions on definitions, instrument types, features and market terms, each with a short explanation.
What you'll learn
- Define the money market and quote the definitions of Crowther and the RBI.
- List the objectives and characteristics of a money market.
- Distinguish the money market from the capital market.
- Name the participants in the money market.
- Describe treasury bills, certificates of deposit and commercial bills with their features and types.
- Explain the characteristics of government or gilt-edged securities.
Before you start
- Chapter 5 on financial markets and the capital market.
- The idea of a bill of exchange and a promissory note.
- The role of the Reserve Bank of India and commercial banks.
Topics covered in this chapter
Money Market explained
What this lesson covers
Meaning and definition
The money market is a market for purely short-term funds. Crowther called it the collective name for firms and institutions that deal in the various grades of near money; the RBI defines it as a market for short-term financial assets that are close substitutes for money.
Objectives and characteristics
It irons out short-term surpluses and deficits, gives the central bank a focal point for intervention and gives users short-term money at a reasonable price. It has no formal place, consists of sub-markets, is a wholesale market, and has commercial banks as its nerve centre.
Money market vs capital market
The table compares duration, instruments, value, institutions, place, participants, risk, liquidity, price discovery, regulator and underwriting.
Instruments
Treasury bills of 91, 182 and 364 days; certificates of deposit issued by banks as usance promissory notes; commercial bills of 30, 60 and 90 days with their types; and government securities with fourteen characteristics including grooming, switching and auctioning.
Common mistakes to avoid
- Calling the RBI or SBI the major player in the money market. The book's answer is commercial banks.
- Confusing commercial paper, issued by corporate houses, with commercial bills drawn by sellers of goods.
- Giving treasury bills the 30, 60 and 90 day periods of commercial bills. Treasury bills run 91, 182 and 364 days.
- Assuming 364 days treasury bills carry a fixed rate. Only 91 days bills have the fixed 4 per cent discount rate.
- Calling a certificate of deposit a secured instrument. It is an unsecured negotiable instrument.
Test yourself on these with the practice test, then check the worked reasoning in the solved MCQs.
Frequently asked questions
What is a money market?
A money market is the segment of financial markets in which financial instruments with maturities of less than one year are traded, for example treasury bills, commercial bills, certificates of deposit and government securities. It is a market for purely short-term funds, also called near money.
What is a CD market?
It is the market for certificates of deposit, which are short-term deposit instruments issued by commercial banks and financial institutions as usance promissory notes to raise large sums. They are negotiable, freely transferable by endorsement and delivery, issued at a discount and repayable on a fixed date.
What are the types of treasury bills?
On the basis of periodicity there are 91 days, 182 days and 364 days treasury bills. The 91 days bills are issued at a fixed discount rate of 4 per cent and through auctions, while 364 days bills carry no fixed rate and are sold at the cut off rate.
What is the Government Securities Market?
It is a market in which government or gilt-edged securities can be bought and sold. These securities are issued by the Central and State Governments and semi-government authorities to refund maturing securities and raise fresh cash, and they are issued through the RBI's Public Debt Office.
What do you mean by switching?
Switching is the purchase of one security against the sale of another security, carried out by the RBI in the secondary market as part of its open market operations.
What do you mean by auctioning?
Auctioning is a method of trading in which merchants bid against one another and the securities are sold to the highest bidder.
Who are the participants in the money market?
The lesson lists governments and central banks of different countries, private and public banks, mutual funds, insurance companies, non-banking financial institutions, the RBI and SBI, commercial banks, State Governments and the public.
Last updated 16 October 2026