Currency notes and coins cannot be refused by any citizen of the country for settlement of any kind of transaction due to which they are called .........

Legal tenders.

The correct answer is Option (2) → Legal tenders.

Currency notes and coins issued by the central authority (RBI and Government of India) must be accepted by everyone in the country for all kinds of monetary transactions. Because no one can legally refuse them in payment of a debt or transaction, they are called legal tenders.

Fiat money refers to money declared by the government as legal tender without intrinsic value (like paper currency).