A bank note is said to be a legal tender because it is

Analyze the question: The question asks why a bank note is called "legal tender." Look closely at the two words: legal (relating to law) and tender (to offer as payment).

Explain the concept: Legal tender is money that the law requires people to accept when it is offered in payment of a debt. In Nigeria, the Central Bank of Nigeria Act gives the naira this status, so a creditor cannot lawfully refuse it as settlement of a debt within the legal limits. What makes money legal tender is therefore the backing of the law, not who prints or signs it.

Step-by-step evaluation of the options:

• A. Printed by government: Not correct. Notes are printed by an authorized body (in Nigeria, the Nigerian Security Printing and Minting Company on behalf of the CBN). Printing alone does not make money legal tender, and a government could print something that has no legal status.
• B. A store of value: Not correct. This is one of the functions of money. It describes how money holds purchasing power over time, not why it must be accepted.
• C. Signed by the head of state: Not correct. Nigerian notes carry the signatures of the CBN Governor and the Director of Currency, not the head of state. Signatures also do not give legal status.
• D. Backed by law: Correct. Legal tender status comes from legislation, which makes the note compulsorily acceptable for payment of debts.

Answer: D. Backed by law.

Exam tip: Break the term apart: "legal" means "by law." Whenever you see "legal tender," think of legal backing and compulsory acceptability. Don't confuse it with the functions of money (medium of exchange, store of value, unit of account, standard of deferred payment).