Correct Option
The correct option is 2 only
Explanation
Money is defined by its functions and its nature of acceptance. In modern economies, the prevailing form of money is "Fiat Money," which differs significantly from historical "Commodity Money" in terms of value derivation and authorization.
Statement-wise Analysis:
- Statement 1 is Incorrect: The primary function of money is to act as a medium of exchange. It facilitates transactions by eliminating the need for a "double coincidence of wants," which is a major limitation of the barter system.
- Statement 2 is Correct: Modern currency (paper notes and coins) is Fiat Money. Unlike gold or silver coins (Commodity Money), modern currency does not possess intrinsic value (the value of the material itself is negligible compared to its face value). Its value is derived from government guarantee.
- Statement 3 is Incorrect: Modern currency is accepted primarily because it is authorized by the government and declared as Legal Tender. This means it is backed by the sovereign authority and cannot legally be refused for the settlement of debt, rather than being accepted merely due to social custom.
Key Takeaway:
Modern currency is Fiat Money, which lacks intrinsic value and derives its validity from government authorization (Legal Tender), distinguishing it from commodity money like gold.