Question map
Not attempted Correct Incorrect ★ Bookmarked
Loading…
Q46 (IAS/2018) Economy › Money, Banking & Inflation › Monetary aggregates Official Key

Which one of the following statements correctly describes the meaning of legal tender money ?

Result
Your answer: —  ·  Correct: B
Explanation

Legal tender is the officially recognized money that a country or jurisdiction must accept for settling debts and financial obligations within its borders.[1] More specifically, it is the legally recognized medium for settling debts, taxes, and other financial obligations within a country, usually its national currency, which creditors must accept as payment.[2] Currency notes and coins are called legal tenders as they cannot be refused by any citizen of the country for settlement of any kind of transaction.[3] In India, the law legalizes the use of rupee as a medium of payment that cannot be refused in settling transactions in India, and no individual in India can legally refuse a payment made in rupees.[4]

Option A is incorrect as legal tender has nothing to do with court fees. Option C is wrong because cheques drawn on savings or current accounts can be refused by anyone as a mode of payment, and hence demand deposits are not legal tenders.[3] Option D is too narrow, as legal tender includes both currency notes and coins, not just metallic money.

Sources
  1. [1] https://www.investopedia.com/terms/l/legal-tender.asp
  2. [2] https://www.investopedia.com/terms/l/legal-tender.asp
  3. [3] Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > THE SUPPLY OF MONEY : VARIOUS MEASURES > p. 48
  4. [4] Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 3: MONEY AND CREDIT > Currency > p. 39
How others answered
Each bar shows the % of students who chose that option. Green bar = correct answer, blue outline = your choice.
Community Performance
Out of everyone who attempted this question.
100%
got it right
PROVENANCE & STUDY PATTERN
Guest preview
Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. Which one of the following statements correctly describes the meaning of legal tender money ? [A] The money which is tendered in courts …
At a glance
Origin: Books + Current Affairs Fairness: Low / Borderline fairness Books / CA: 2.5/10 · 7.5/10
You're seeing a guest preview. The Verdict and first statement analysis are open. Login with Google to unlock all tabs.

This is a textbook 'Sitter' directly from NCERT Class XII Macroeconomics. It tests the fundamental definition of money, specifically distinguishing 'Legal Tender' (compulsory) from 'Fiduciary Money' (trust-based like cheques). If you missed this, you are skimming NCERTs rather than understanding them.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Is legal tender money defined as money which is tendered in courts of law to defray the fee of legal cases?
Origin: Web / Current Affairs Fairness: CA heavy Web-answerable

Web source
Presence: 5/5
"Legal tender is the officially recognized money that a country or jurisdiction must accept for settling debts and financial obligations within its borders."
Why this source?
  • Provides a direct definition of legal tender as the money a jurisdiction must accept to settle debts and financial obligations, not limited to court fees.
  • Explicitly ties legal tender to settling debts and obligations within a country, contradicting the narrow court-fee definition in the statement.
Web source
Presence: 5/5
"Any official medium of payment recognized by law that can be used to extinguish a public or private debt or meet a financial obligation."
Why this source?
  • Defines legal tender as an official medium of payment used to extinguish public or private debt or meet financial obligations.
  • Shows legal tender's scope is broader (debts/financial obligations) than merely being money tendered in courts for fees.
Web source
Presence: 4/5
"Virtual currencies do not meet any of the features that characterise a legal tender: when tendered to a creditor, they are not widely recognised as a valid and legal offer of payment,"
Why this source?
  • Explains the concept of 'tendered to a creditor' as the context in which legal tender functions, emphasizing creditor acceptance rather than court fees.
  • Contrasts legal tender with virtual currencies which are not 'widely recognised as a valid and legal offer of payment' when tendered to a creditor, reinforcing the debt-payment definition.

Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > THE SUPPLY OF MONEY : VARIOUS MEASURES > p. 48
Strength: 5/5
“giving the person purchasing power equal to the value printed on the note. The same is also true of coins. Currency notes and coins are therefore called fiat money. They do not have intrinsic value like a gold or silver coin. They are also called legal tenders as they cannot be refused by any citizen of the country for settlement of any kind of transaction. Cheques drawn on savings or current accounts, however, can be refused by anyone as a mode of payment. Hence, demand deposits are not legal tenders.”
Why relevant

States that currency notes and coins are called legal tenders because they cannot be refused by any citizen for settlement of any kind of transaction.

How to extend

A student could contrast 'tendered in courts to defray fees' with this broader rule that legal tender means acceptance for settlement of debts/transactions, not a court-fee-specific meaning.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 54
Strength: 5/5
“The same is also true for coins. Currency notes and coins do not have intrinsic value i.e., the piece of paper in case of rupee note or the iron in case of coin does not have the value of the material but it derives its value from the promise of RBI. Currency notes and coins are therefore called fiat money. They are also called legal tenders as they cannot be refused by any citizen of the country for payment/discharge of debt (For example: Is an autowallah obliged to accept your currency note for a ride? Not necessarily! If you are yet to get into the auto, the autowallah can turn you down despite it being a legal tender.”
Why relevant

Explains legal tender as currency that cannot be refused for payment/discharge of debt and gives an example where acceptance may still be context-dependent.

How to extend

Use the general rule that legal tender settles debts to judge whether a court-fee-only definition fits the established meaning (it does not).

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > MONEY > p. 158
Strength: 4/5
“Definition of Money: Money is anything that is proclaimed by law as a medium of exchange, such as paper notes and coins. Notes and coins are also called fiat money, as it commands the order/authority of the government. According to Crowther, 'Money can be defined as anything that is generally accepted as a means of exchange and, at the same time, acts as a measure and as a store of value'. Fiat Money - The money which does not have any intrinsic value is called fiat money. For example, the value of currency notes and coins is not based on its production cost but is derived from the face value or guarantee provided by the issuing authority to the bearer of that currency or coin.”
Why relevant

Defines money/fiat money and notes that currency is proclaimed by law as a medium of exchange, implying legal tender status relates to medium of exchange and debt settlement.

How to extend

Apply this definition to infer legal tender refers to legally sanctioned medium for transactions broadly, not just court fee payments.

Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 3: MONEY AND CREDIT > Currency > p. 39
Strength: 5/5
“As per Indian law, no other individual or organisation is allowed to issue currency. Moreover, the law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions in India. No individual in India can legally refuse a payment made in rupees. Hence, the rupee is widely accepted as a medium of exchange.”
Why relevant

Says law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions in India.

How to extend

A student could combine this statutory note with the court-fee claim and see the latter is a narrow instance, so the definition in the statement is likely incomplete or misleading.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 8: Financial Market > 2018 > p. 248
Strength: 3/5
“Which one of the following statements correctly describes the meaning of legal tender money? (a) The money which is tendered in courts of law to defray the fee of legal cases. (b) The money which a creditor is under compulsion to accept in settlement of his claims. (c) The bank money in the form of cheques, drafts, bills of exchange, etc. (d) The metallic money in circulation in a country. Which of the statements given above is/are correct? (b) 3 only (a) 1 and 2 only (d) 1, 2 and 3 (c) 2 and 3 only 18. With reference to the governance of public sector banking in India, consider the following statements:”
Why relevant

Presents an MCQ option exactly matching the questioned definition (money tendered in courts to defray legal fees), implicitly treating it as a possible but contestable meaning.

How to extend

Compare this distractor option against authoritative definitions in other snippets to eliminate the court-fee-only definition.

Statement analysis

This statement analysis shows book citations, web sources and indirect clues. The first statement (S1) is open for preview.

Login with Google to unlock all statements.

Statement analysis

This statement analysis shows book citations, web sources and indirect clues. The first statement (S1) is open for preview.

Login with Google to unlock all statements.

Statement analysis

This statement analysis shows book citations, web sources and indirect clues. The first statement (S1) is open for preview.

Login with Google to unlock all statements.

How to study

This tab shows concrete study steps: what to underline in books, how to map current affairs, and how to prepare for similar questions.

Login with Google to unlock study guidance.

Micro-concepts

Discover the small, exam-centric ideas hidden in this question and where they appear in your books and notes.

Login with Google to unlock micro-concepts.

The Vault

Access hidden traps, elimination shortcuts, and Mains connections that give you an edge on every question.

Login with Google to unlock The Vault.

✓ Thank you! We'll review this.

SIMILAR QUESTIONS

CDS-II · 2011 · Q89 Relevance score: -0.04

Consider the following statements : I. In India the minimum denomination coin acceptable for transaction is 50 paise. 2. Coins below 50 paise is not a legal tender for payment. Which of the statements given above is/are correct ?

CDS-I · 2017 · Q73 Relevance score: -1.55

Which of the following statements about Bitcoin is/are correct? 1. It is a decentralized virtual currency. 2. It is generated through complex computer software systems. 3. The Reserve Bank of India recognized it as a legal tender in January 2016. Select the correct answer using the code given below.

NDA-II · 2016 · Q97 Relevance score: -2.48

Which one of the following statements about Money Bill is correct ?

IAS · 2000 · Q59 Relevance score: -4.01

Which one of the following statements about a Money Bill is not correct ?

IAS · 1999 · Q66 Relevance score: -4.32

Which one of the following statements is not correct ? Dinar/New dinar is the currency of