Question

Assertion (A): Demand deposits with the banks are not legal tender.

Reason (R): People have the right not to accept payment through cheques.

Options

• Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation for Assertion (A).

• Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation for Assertion (A).

• Assertion (A) is true and Reason (R) is false.

• Both Assertion (A) and Reason (R) are false.

Answer 1

Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation for Assertion (A).

Explanation:

Demand deposits are classified as optional or fiduciary money rather than legal tender because no individual can be legally compelled to accept them as a settlement for a debt. Because cheques are merely instruments used to transfer these demand deposits, a person has the legal right to refuse payment by cheque and insist on fiat currency (banknotes and coins) instead.