This study investigates the potential determinants of call money rate (interest rate) of Pakistan. External sector indices for this study are inflation, broad money, net foreign assets, foreign interest rate, gross domestic product and inflation risk. For empirical findings, the researcher used monthly data set for the period (2006-2016). There is all embracing work done on the determinants of the interest rate (call money rate), but literature review advise that ARCH effect in interest rate series was not incorporated due to which the impact of many explanatory variables was ignored. Modeling techniques for this specific purpose are GARCH type models and ARDL modeling with a general model that does not follow explicitly any theory of interest rate. The empirical results of GARCH model suggests that inflation, broad money and net foreign assets have negative relationship with interest rate in Pakistan’s economy. While ARDL model results that inflation rate have positive relationship with interest rate (call money rate). Thus, the study recommends that GARCH modeling is playing better role in exploring determinants of interest rate in case study of Pakistan. Supervisor:- Dr. Saud Ahmed Khan