Money Market Instruments Explained Simply For The ACI Exam
- swapskills
- Apr 15
- 3 min read
Updated: Apr 16
What Every ACI Dealing Certificate Candidate Must Know
The Money Market section of the ACI Dealing Certificate is not conceptually difficult.
But it is mechanically unforgiving.
Candidates rarely fail because they don’t understand what a deposit is.
They lose marks because they:
Apply the wrong day count
Misprice discount instruments
Confuse yield and discount rates
Forget settlement conventions
Let’s simplify this properly.
1️⃣ What Is the Money Market?
The money market deals with short-term borrowing and lending, typically under one year.
Participants include:
Banks
Corporates
Central banks
Governments
The core objective?
Liquidity management.
Think short-term funding — not long-term investment.
2️⃣ The Core Instruments You Must Know
For the ACI exam, these are essential:
🔹 Interbank Deposits
This is the foundation instrument.
A simple loan between two banks for a fixed period.
Example:
USD 10,000,000
3 months
5% ACT/360
Interest = Principal × Rate × (Days / 360)
This is a pure interest calculation.
Exam focus:
Day count (usually ACT/360 for USD & EUR)
Start and maturity date
Value date adjustments
If you get deposits wrong, you will struggle elsewhere.
🔹 Certificates of Deposit (CDs)
A CD is a negotiable deposit instrument.
Issued by banks. Tradeable in secondary markets.
Key exam points:
May trade at a discount
Yield calculation differs from simple deposits
Understand price vs yield relationship
Price falls → Yield rises.
Always.
🔹 Treasury Bills (T-Bills)
Short-term government debt.
Issued at a discount to par.
Example:
Face value: $1,000,000
Purchase price: $980,000
Investor earns $20,000 at maturity.
The exam often tests:
Discount rate formula
Money market yield conversion
Comparison to deposit yield
This is where candidates mix up discount yield and investment yield.
Slow down here.
🔹 Commercial Paper (CP)
Short-term corporate borrowing.
Unsecured.
Priced similarly to T-Bills (often at a discount).
Exam focus:
Credit risk difference vs T-Bills
Yield comparison
Liquidity considerations
Government risk ≠ corporate risk.
🔹 Repurchase Agreements (Repos)
A repo is:
Sale of a security
With agreement to repurchase later
Economically?
It is a secured borrowing.
The interest is embedded in the repurchase price.
Exam focus:
Repo rate calculation
Collateral
Haircuts
Difference between repo and reverse repo
Repo = You borrow cash.
Reverse repo = You lend cash.
From your perspective.
3️⃣ What the ACI Exam Is Really Testing
The exam does not want definitions.
It tests whether you can:
Calculate interest correctly
Compare yields
Understand liquidity implications
Apply correct day count conventions
Distinguish secured vs unsecured borrowing
It is practical market logic.
4️⃣ The Most Common Exam Mistakes
Let’s be blunt.
Candidates lose marks because they:
Use 365 instead of 360
Forget discount instruments are priced differently
Confuse yield and price
Ignore settlement dates
Rush calculations
Money market maths is mechanical.
Mechanical questions reward discipline.
5️⃣ The Simple Framework That Keeps You Safe
Whenever you see a money market question:
Identify the instrument (Deposit? T-Bill? Repo?)
Identify the day count convention
Determine whether it’s priced at par or discount
Confirm whether the rate is simple interest or discount yield
Then calculate
If you follow that checklist, you eliminate most avoidable errors.
6️⃣ Why This Section Matters
In the ACI Dealing Certificate:
You must pass each section individually.
Money Markets is often seen as “easy marks.”
But only if you control the mechanics.
If you’re careless, it becomes a silent mark-killer.
Final Advice
Do not aim to understand money markets vaguely.
Aim to calculate them flawlessly.
Because in a multiple-choice exam: Precision wins.
If you're preparing for the ACI Dealing Certificate (New Version) and want structured mock exams, realistic rate calculations and exam-style scenarios, explore the full SwapSkills programme here:
Master the mechanics.Protect the marks.Pass each section confidently.
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