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
Correct Answer
D
developing an international market for currencies in India
Explanation
Convertibility of the rupee refers to the freedom to exchange the domestic currency for foreign currencies and vice versa at market-determined rates, making option (c) the precise definition. Option (b) is the most tempting wrong choice because it describes a "floating exchange rate" system, which concerns how the currency's value is determined rather than the legal permission to convert it. The core concept tested is currency convertibility, a key pillar of a country's integration with the global economy through its current and capital accounts.
Foreign Exchange MarketCurrency ConvertibilityRupee ConvertibilityCurrent Account ConvertibilityCapital Account ConvertibilityTarapore CommitteeForeign Exchange Management ActFEMA