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Q27 (IAS/1994) Economy › External Sector & Trade › Currency convertibility regimes Answer Verified

Convertibility of the rupee implies

Result
Your answer: —  ·  Correct: C
Explanation

Convertibility of the rupee means that the domestic currency can be freely exchanged for foreign currencies and vice versa, typically at a market-determined rate. This definition directly corresponds to allowing rupee–foreign currency conversions without restrictions, i.e., option 3 [1]. The textbooks explicitly state convertibility as freedom to convert foreign exchange into rupees and rupees into foreign exchange and note current- and capital-account types of convertibility [1]. Options 1 and 4 describe distinct concepts (gold convertibility or creating an international FX market) rather than the basic meaning; option 2 refers to exchange-rate determination (market fixing) which may accompany convertibility but is not its definition [2].

Sources

  1. [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 17: India’s Foreign Exchange and Foreign Trade > CONVERTIBILITY OF INDIAN RUPEE > p. 498
  2. [2] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Current Account Convertibility: > p. 109
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