Given below are two statements:
Assertion (A): The interest rate paid on call money loans is known as the discount.
Reason (R): Call money is a method by which banks borrow from each other to be able to maintain the cash reserve ratio.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A) is false but (R) is true.
Assertion (A): The interest rate paid on call money loans is known as the discount. — False. The interest rate paid on call money loans is called the call rate. Discount is the name for the gain on a treasury bill, the gap between its issue price and its face value.
Reason (R): Call money is a method by which banks borrow from each other to be able to maintain the cash reserve ratio. — True. Call money is short-term finance repayable on demand, used between banks. Banks borrow it from each other to maintain the cash reserve ratio, the minimum cash balance they must keep.
NCERT (Pre-rationalised Edition): “3. Call Money: 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. …” |