Q. With reference to Balance of Payments (BoP) and currency convertibility, consider the following statements:
1.A BoP deficit always implies an unfavourable situation for an economy.
2.Full capital account convertibility allows unrestricted conversion of domestic currency into foreign currency for capital transactions.
Which of the statements given above is/are correct?
Answer: B
Notes:
Explanation:
- A negative or deficit BoP is not necessarily unfavourable. It becomes problematic only if the country lacks sufficient forex reserves to bridge the gap. Otherwise, it can be managed smoothly.
- Full capital account convertibility means the domestic currency can be freely converted into foreign currency for capital transactions like investments, loans, etc., without restrictions.
Source- TMH Indian Economy by Ramesh Singh
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