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

Which one of the following statements correctly describes the meaning of legal tender money? (UPSC CSE 2018)

1. The money which is tendered in courts of law to defray the fee of legal cases
2. The money which a creditor is under compulsion to accept in settlement of his claims
3. The bank money in the form of cheques, drafts, bills of exchange, etc.
4. The metallic money in circulation in a country

Answer: B

Explanation

Legal tender is anything recognized by law as a means to settle a public or private debt or meet a financial obligation, including tax payments, contracts, and legal fines or damages. The national currency is legal tender in practically every country. A creditor is legally obligated to accept legal tender toward repayment of a debt.Legal tender laws effectively prevent the use of anything other than the existing legal tender as money in the economy. Legal tender serves the economic functions of money plus a few additional functions, such as making monetary policy and currency manipulation possible.

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