Currency notes and coins are called as:
-
- flat money
- legal tenders
- Fiat money
- Both (b) and (c )
Correct Answer: Both b and c
Answer Explanation
A correct answer is (d) “Both (b) and (c) – Legal Tenders and Fiat Money.” Currency notes and coins fall under both categories.
Legal Tenders:
Any form of currency that has been declared acceptable for settlement of financial obligations, such as debt, taxes, and other payments, is considered legal tender. Legal tenders are the currency notes and coins issued by the central bank in most countries. The law mandates the acceptance of legal tenders, and individuals and businesses must accept them as payment for goods and services. Refusing legal tender in a transaction is illegal.
Fiat Money:
A fiat currency does not have intrinsic value. Instead, its value is determined by the trust and confidence of its users. It is not backed by any physical commodity like gold or silver. As a medium of exchange, currency notes and coins are considered fiat money because their value is determined and maintained by the government. A fiat currency’s value is primarily determined by the stability and strength of its issuing country’s economy and its citizens’ trust.
Why the other options are not correct
a. Flat money
It is likely that flat money is a misunderstanding or misnomer for fiat money. Flat money is not a standard term in economics or finance and does not accurately describe currency notes and coins.
b. Legal tenders
Although option (b) “Legal tenders” correctly identifies currency notes and coins as legal tenders, it is not the complete answer. In addition to ensuring that these forms of currency are accepted as payment of debts, legal tender status does not address the fact that currency notes and coins are also considered fiat money.
c. Fiat Money :
Option (c) “Fiat money” correctly identifies currency notes and coins as fiat money, but does not cover the legal tender implications.
Conclusion
Currency notes and coins are both referred to as “Legal Tenders” and “Fiat Money.” As legal tenders, they are officially recognized by the government as acceptable payment methods for fulfilling financial obligations. Their value derives from the trust and confidence of the people who use them, and they are not backed by any physical asset.
Currency notes and coins are legal tender and fiat money, and understanding their nature as such is fundamental to understanding monetary systems and economies.
Which among the following is considered to be the most liquid asset?
I am Bibisha Shiwakoti a final year BBS student from Janapremi College. I have completed my higher secondary education at Kalinchowk Secondary School.
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