Question

Read the following statements – Assertion (A) and Reason (R) :

Assertion (A) : Money market instruments have a higher degree of liquidity as compared to capital market securities.

Reason (R) : Money market instruments are traded on the stock exchanges.

Choose the correct alternative from the alternatives given below :

• A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
• B. Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
• C. Assertion (A) is true and Reason (R) is false.
• D. Assertion (A) is false and Reason (R) is true.

Hint:

Money market instruments are short-term and more liquid, so A is true. They are not traded on stock exchanges, so R is false.

Answer 1

The Correct Option is C

Step 1: Understand the two markets:
The money market deals in short-term funds with maturity up to one year. The capital market deals in long-term securities such as shares and debentures.
Money market instruments are bought and sold mainly between banks, institutions and large firms. They are not listed on stock exchanges.

Step 2: Check the Assertion (A):
Money market instruments like treasury bills and commercial paper mature in a short time and can be turned into cash quickly. So they have high liquidity.
Capital market securities have a longer life and are less liquid. So Assertion (A) is TRUE.

Step 3: Check the Reason (R):
Shares and debentures are traded on stock exchanges. Money market instruments are not. They are dealt in over the counter, with no formal exchange.
So Reason (R) is FALSE.

Step 4: Option (1): both true and R explains A:
This is wrong because R is false. A false statement cannot explain anything.

Step 5: Option (2): both true but R does not explain A:
This is wrong because R is not true. For this option both must be true.

Step 6: Option (4): A false and R true:
This is wrong because A is true and R is false. It reverses the correct position.

Step 7: Option (3): A true and R false:
This matches our check. A is true and R is false, so option (3) is correct.

Final Answer:
Assertion (A) is true and Reason (R) is false, which is option (3).