The correct statement regarding the convertibility of the Indian rupee is option 2, which states that it is convertible on the current account.
To understand this further, let`s explain the concept of convertibility. Convertibility refers to the ease with which a currency can be converted into another currency or used for international transactions. It can be classified into two types: current account convertibility and capital account convertibility.
Current account convertibility allows for the unrestricted conversion of a currency for the purpose of trade in goods and services, as well as for other current account transactions such as travel expenses, remittances, and payments on loans. Essentially, it means that individuals and businesses can freely convert their Indian rupees into foreign currencies to carry out these transactions.
On the other hand, capital account convertibility refers to the free movement of funds for investments and financial assets between countries. Under capital account convertibility, individuals and businesses can freely convert their currency for the purpose of investing in foreign stocks, real estate, or other assets.
In the case of the Indian rupee, while it is not fully convertible on the capital account, it is convertible on the current account. This means that individuals and businesses can freely convert the Indian rupee for the purpose of current account transactions. However,