Question

Distinguish between legal tender and optional money.

Answer 1

Paper money refers to the currency issued by a country's central bank. Deposit money consists of funds kept in banks that depositors can withdraw on demand. Currency is considered legal tender as it is supported by the government. In contrast, bank deposits are not legal tender and are regarded as optional money.

Answer 2

Best of comparison	Legal Tender	Optional Money
Definition	Money that must be accepted if offered in payment of a debt.	Money that may or may not be accepted in payment, at the discretion of the receiver.
Acceptance	Compulsory under law.	Voluntary, not mandated by law.
Examples	Currency notes and coins are issued by the government and the RBI.	Cheques, demand drafts, credit cards, and promissory notes.
Authority	Issued by the central authority (RBI/government).	Issued by private individuals or banks.
Enforceability	It can be legally enforced for the payment of debts.	It cannot be enforced by law for acceptance in payment.
Obligation to Accept	All individuals and institutions must accept.	Acceptance depends on mutual agreement.