A) being able to convert rupee notes into gold
B) Allowing the value of the rupee to be fixed by market forces
C) Freely permitting the conversion of rupee to other major currencies and vice versa
D) Developing an international market for currencies in India
Correct Answer: C
Solution :
[c] Currency convertibility is the ease with which a country's currency can be converted into gold or another currency. Convertibility is extremely important for international commerce. When a currency in inconvertible, it poses a risk and barrier to trade with foreigners who have no need for the domestic currency. Government restrictions can often result in a currency with a low convertibility. For example, a government with low reserves of hard foreign currency often restrict currency convertibility because the government would not be in a position to intervene in the foreign exchange market (i.e. revalue, devalue) to support their own currency if and when necessary.
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