Read the following statements and answer the question.

Assertion (A): There exists an inverse relationship between call rate and other short-term money market instruments.
Reason (R): A rise in call rate makes other sources of finance like certificate of deposit and commercial paper costlier and banks raise funds from these sources.

A is true but R is false

The correct answer is option 3-A is true but R is false.

Assertion (A): There exists an inverse relationship between call rate and other short-term money market instruments. THIS IS TRUE.

Reason (R): A rise in call rate makes other sources of finance like certificate of deposit and commercial paper costlier and banks raise funds from these sources. THIS IS FALSE as it make other instruments cheaper.

Call money is short term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions. Commercial banks have to maintain a minimum cash balance known as cash reserve ratio. The Reserve Bank of India changes the cash reserve ratio from time to time which in turn affects the amount of funds available to be given as loans by commercial banks. Call money is a method by which banks borrow from each other to be able to maintain the cash reserve ratio. The interest rate paid on call money loans is known as the call rate. It is a highly volatile rate that varies from day-to-day and sometimes even from hour-to-hour. There is an inverse relationship between call rates and other short-term money market instruments such as certificates of deposit and commercial paper. A rise in call money rates makes other sources of finance such as commercial paper and certificates of deposit cheaper in comparison for banks raise funds from these sources.