CMA Foundation · Fundamentals of Business Economics and Management · Money and Banking
Which of the following is classified as fiat money?
A rupee currency note is fiat money. It is accepted because the government declares it legal tender and not because the paper has intrinsic worth. A full-value gold coin is commodity money, while cheques and deposit receipts are credit instruments rather than fiat money.
- AA gold coin whose metal value equals its face value
- BA rupee currency note that is legal tender because the government decrees it so, though its paper has negligible valueCorrect
- CA bank's fixed deposit receipt
- DA cheque drawn on a savings account
Explanation
Fiat money has value because the government declares it legal tender, not because of the material it is made of. A rupee note fits this. A gold coin of equal metal value is full-bodied commodity money. Fixed deposits and cheques are credit instruments, not fiat money.
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