Q: Convertibility of rupee implies
a) being able to convert rupee notes into gold
b) allowing the value of rupee to be fixed by market forces
c) freely permitting the conversion of rupee to other currencies and vice versa
d) developing an international market for currencies in India
The correct answer is Option 3.
- The RBI used to regulate the exchange rate while converting Indian rupees into foreign money.
- A licenced dealer was required to buy all earned foreign currency.
- To buy foreign currency, one had to have the central bank’s approval.
- The fundamental intention behind this was to allocate the people’s earned foreign exchange under the government’s established priorities.
- India is one of the nations that international investors like to invest in because it is now a fast-developing nation.
- India could not restrict its foreign trade as It needs to grow further. So the government has allowed the convertibility of the rupee in a phased manner on current account transactions. Hence, Option 3 is correct.
- But full convertibility of currency for capital account transactions is still a distant dream.
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