Nature of Money:

The nature of money is usually discussed under three headings:

a. Legal tender: Money which by nature must be accepted in payment for goods and in discharge of debt obligations. Currency notes and coins are legal tender in all modern economies.

b. Fiat money: Money that is not a commodity and it is not redeemable in any commodity. What gives such money value and acceptability is their being declared as legal tender by the government. Money in the form of currency notes fit into this description.

c. Token money: This refers to money whose face value is greater than the actual value of the material of which it is made. In most economies, coins are token money, whose value as metal is less than their monetary value.