Question

Q. Consider the following statements, with respect to ‘Fiat money’.

Which of the statements given above is/are incorrect?

• A. 1 only
• B. 2 only
• C. Both 1 and 2
• D. Neither 1 nor 2

Answer 1

The correct option is D Neither 1 nor 2

Explanation:

Statement 1 is correct: The value of currency notes and coins is derived from the guarantee provided by the issuing authority. Every currency note and coin bears on its face a promise from the RBI governor that if someone produced the notes to RBI or any other commercial bank, RBI will be responsible for giving the person purchasing power equal to value printed on Notes. The same is true for coins.

Statement 2 is correct: Currency notes and Coins do not have intrinsic value like silver and copper.