Correct Option
The correct option is 1 and 3 only.
Explanation
Modern currency is classified as Fiat Money. Unlike commodity money (such as gold or silver coins), fiat money has no intrinsic value. Its value is derived from government regulation and public trust, rather than the material it is made of.
Statement-wise Analysis
- Statement 1 is Correct: Modern currency notes and coins are not made of precious metals like gold or silver. They are typically made of paper (cotton rag) or common metals (such as ferritic stainless steel or nickel brass).
- Statement 2 is Incorrect: The rupee is accepted as a medium of exchange because it is authorized by the Government of India, not because it is made of gold. It is backed by the sovereign guarantee of the issuer (the Reserve Bank of India for notes, and the Government of India for coins and one-rupee notes).
- Statement 3 is Correct: The law legalizes the use of the rupee as a medium of payment. It is designated as Legal Tender, meaning that it cannot be refused by any citizen in India for the settlement of transactions or debts.
Key Takeaway
Fiat Money is currency established as money, often by government regulation, that does not have intrinsic value. Legal Tender status ensures that the currency must be accepted for the discharge of debt within the country.