Q. Which of the following policies of the financial sectors is basically designed to transfer local financial assets into foreign financial assets freely and at market determined exchange rates?
Solution:
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Capital account convertibility is a feature of a nation’s financial regime that centers on the ability to conduct transactions of local financial assets into foreign financial assets freely or at country determined exchange rates.
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It is sometimes referred to as capital asset liberation or CAC.
IN LAYMAN LANGUAGE
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Current account convertibility refers to the freedom to convert your rupees into other internationally accepted currencies and vice versa without any restrictions whenever you make payments.
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Full current account convertibility allowed in India
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Similarly, Capital account convertibility is the freedom of foreign investors to purchase Indian financial assets (shares, bonds, etc.) and that of the Indian investors to purchase foreign financial assets. It involves the freedom to invest in financial assets.
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Partial Capital convertibility allowed in India
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