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
Correct Answer
C
The bank money in the form of cheques, drafts, bills of exchange, etc.
D
The metallic money in circulation in a country
Explanation
Option (B) is correct because legal tender is any form of payment recognized by law that a creditor is legally obligated to accept for the discharge of a debt or financial obligation. Option (C) is the most common distractor but is incorrect because bank money like cheques and drafts is "fiduciary money," which a person can legally refuse to accept. The core concept tested is the legal status of currency and the distinction between mandatory acceptance (legal tender) and optional acceptance (non-legal tender).
Money & BankingLegal Tender MoneyLegal tender moneycreditorcompulsion to acceptsettlement of claimsbank moneychequesmetallic money