Convertibility of rupee implies

1. being able to convert rupee notes into gold
2. allowing the value of rupee to be fixed by market forces
3. freely permitting the conversion of rupee to other currencies and vice versa
4. developing an international market for currencies in India

Explanation

Option (c) is correct

• Convertibility of currency means when currency of a country can be freely converted into foreign exchange at market determined rate of exchange that is, exchange rate as determined by demand for and supply of a currency. For example, convertibility of rupee means that those who have foreign exchange (e.g. US dollars, Pound Sterlings etc.) can get them converted into rupees and vice-versa at the market determined rate of exchange.
• Rupee is both convertible on capital account and current account.
• Current account: It means all exports and imports of merchandise and invisible (like services etc).
• Capital account: By capital account convertibility we mean that in respect of capital flows (that is, flows of portfolio capital, direct investment flows, flows of borrowed funds and dividends and interest payable on them) a currency is freely convertible into foreign exchange and vice-versa at market determined exchange rate.
• As of 2024, the Indian rupee is current account convertible but not capital account convertible.

Answer: (c) freely permitting the conversion of rupee to other currencies and vice versa; Difficulty Level: Easy