Question

Distinguish between Legal Tender Money and Credit Money or Bank Money/Optional Money.

Answer 1

When general acceptability of any medium of exchange is enforced by law, the medium of exchange is called the legal tender money or fiat money. Ex. The rupee notes and coins are legal tender. No one can refuse to accept this money in exchange of goods and services.

Any deposit with commercial which can be withdrawn on demand is called demand deposit. Ex cheques. At present plastic money in form of debit cards and credit cards issued by different commercial banks also fall under this category. It is important to note that someone can refuse to accept such bank money in the form of cheques or credit cards.