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Q97 (CAPF/2013) Economy › External Sector & Trade › Currency convertibility regimes Answer Verified

Which of the following statements is correct with respect to the convertibility of Indian rupee?

Result
Your answer: —  Â·  Correct: B
Explanation

The Indian rupee is fully convertible on the current account, a status achieved in 1994 following the economic reforms initiated in 1991 [2]. Current account convertibility allows for the free conversion of domestic currency into foreign currency for transactions involving trade in goods, services, and invisibles [4]. While the rupee is fully convertible for these purposes, certain administrative limits exist for specific transactions like foreign travel or education. In contrast, the rupee remains only partially convertible on the capital account [2]. Capital account convertibility refers to the freedom to convert local financial assets into foreign financial assets and vice versa. Although India has gradually liberalized capital flows, including Foreign Direct Investment (FDI) and portfolio investments, it has not yet moved to full capital account convertibility to maintain macroeconomic stability [2].

Sources

  1. [1] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Current Account Convertibility: > p. 109
  2. [2] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 6: Indian Economy [1947 – 2014] > Following lists down the details of the major reforms carried out in June-July 1991: > p. 216
  3. [4] https://www.imf.org/external/np/apd/seminars/2003/newdelhi/jadhav.pdf
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SIMILAR QUESTIONS

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