Modern Forms of Money MCQ Practice Questions for UPSC & SSC Exams

Modern Forms of Money include currency notes, coins, demand deposits, debit cards, credit cards, digital payments and electronic money. This topic explains how modern economies use different forms of money for daily transactions. It is frequently asked in UPSC, SSC, Banking, Railway and other competitive examinations. Solve these MCQ practice questions with explanations to improve your understanding.

Practice MCQ Questions

Ques: 1

With reference to ‘Bitcoins’, sometimes seen in the news, which of the following statements is / are correct?

Bitcoins are tracked by the central banks of the countries.
Anyone with a Bitcoin address can send and receive Bitcoins from anyone else with a Bitcoin address.
Online payments can be sent without either side knowing the identity of the other.

Select the correct answer using the code given below :

(A) 1 and 2 only (B) 2 and 3 only (C) 3 only (D) 1, 2 and 3

Ques: 2

Consider the following:

Currency with the public
Demand deposits with banks
Time deposits with banks
Which of these are included in Broad Money (M3) in India?

(A) 1 and 2 (B) 1 and 3 (C) 2 and 3 (D) 1, 2 and 3

Ques: 3

If you withdraw Rs. 1,00,000 in cash from your Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will be:

(A) To reduce it by Rs. 1,00,000 (B) To increase it by Rs. 1,00,000 (C) To increase it by more than Rs. 1,00,000 (D) To leave it unchanged

Ques: 4

Which one of the following statements correctly describes the meaning of legal tender money?

(A) The money which is tendered in courts of law to defray the fee of legal cases (B) The money which a creditor is under compulsion to accept in settlement of his claims (C) The bank money in the form of cheques, drafts, bills of exchange, etc. (D) The metallic money in circulation in a country

Correct Answer: (B) The money which a creditor is under compulsion to accept in settlement of his claims

Legal tender is a coin or a banknote that is legally tenderable for discharge of debt or obligation. In other words, legal tender money is a form of money recognized by law as a means to settle a public or private debt or to meet a financial obligation, including tax payments, contracts, and legal fines or damages. Hence, it is the money which a creditor is under compulsion to accept in settlements of his claims. The metallic money (coins) in circulation in a country is part of legal tender which includes banknotes also. But, there may be some limitations (as in India) for coins to be legal tender in payment. The coins issued by Government of India under Section 6 of The Coinage Act, 2011, shall be legal tender in payment or on account provided that a coin has not been defaced and has not lost weight so as to be less than such weight as may be prescribed in its case. Coin of any denomination not lower than one rupee shall be legal tender for any sum not exceeding one thousand rupees. Fifty paise (half rupee) coin shall be legal tender for any sum not exceeding ten rupees. While anyone cannot be forced to accept coins beyond the limits mentioned above, voluntarily accepting coins for amounts exceeding the limits mentioned above is not prohibited. Every banknote issued by Reserve Bank of India (Rs. 2, Rs. 5, Rs. 10, Rs. 20, Rs. 50, Rs. 100, Rs. 200, Rs. 500 and Rs. 2000), unless withdrawn from circulation, shall be legal tender at any place in India in payment or on account for the amount expressed therein, and shall be guaranteed by the Central Government, subject to provisions of sub-section (2) Section 26 of RBI Act, 1934. Rs. 1 note issued by Government of India are also legal tender. Rs. 500 and Rs. 1000 banknotes of Mahatma Gandhi series issued up to November 08, 2016 have ceased to be legal tender with effect from the midnight of November 8, 2016.

Ques: 5

Consider the following:

1. Metallic Money
2. Representative Money
3. Commodity Money
4. Electronic Money

How many of the given above are the types of money:

(A) Only One (B) Only two (C) Only three (D) All four

Ques: 6

Consider the following statements regarding Helicopter Drop:

1. It refers to increasing the supply of money in an economy.
2. It is an expansionary fiscal policy.
3. It involves printing large sums of money and distributing it to public.
Which of the statements given above are correct?

(A) 1 and 2 only (B) 2 and 3 only (C) 1 and 3 only (D) All of the above

Modern forms of Money MCQs with Explanations

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