Convertibility of rupee implies

[amp_mcq option1=”being able to convert rupee notes into gold” option2=”allowing the value of rupee to be fixed by market forces” option3=”freely permitting the conversion of rupee to other currencies and vice versa” option4=”developing an international market for currencies in India” correct=”option3″]

This question was previously asked in

UPSC IAS – 2015

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The correct option is C. Convertibility of rupee implies freely permitting the conversion of rupee to other currencies and vice versa.

– Currency convertibility refers to the ease with which a domestic currency can be exchanged for foreign currencies.
– Full convertibility means the currency can be freely exchanged for any purpose (trade, services, capital flows).
– Partial convertibility imposes restrictions on certain types of transactions, usually capital account transactions.
– India currently has full current account convertibility (for trade in goods and services) and partial capital account convertibility (restrictions apply to certain capital flows).

Option A relates to the outdated Gold Standard. Option B describes a floating exchange rate system, which is distinct from convertibility, although often associated with it. Option D describes the development of financial markets, which can be facilitated by convertibility but is not its definition. Option C accurately captures the essence of currency convertibility in the modern context.

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