Consider the following statements: Full convertibility of the rupee may mean: 1. Its free float with the international currencies 2. Its direct exchange with any other international currency at any prescribed place inside and outside the country 3. It acts just like any other international currency. Which of these statements are correct?

Question

YESPYQ · Accepted Answer

Correct answer: 1, 2 and 3. Full Convertibility refers to a currency’s ability to be freely exchanged for any other currency without restrictions, both for current account transactions (like trade in goods and services) and capital account transactions (like investments and loans). Statement 1 is correct : Full convertibility means the rupee can be freely exchanged with other international currencies without restrictions on the exchange rate, allowing it to float based on market demand and supply. Statement 2 is correct : Full convertibility would enable the rupee to be directly exchanged with any foreign currency at both domestic and international financial institutions, facilitat- ing smoother global trade and investment transactions. Statement 3 is correct : A fully convertible rupee would func- tion like an international currency, allowing unrestricted movement of capital across borders, making India more integrat- ed into the global economy. 284

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