Correct Option
Convertibility of the rupee signifies the freedom to convert Indian currency into foreign currencies and vice versa. This conversion can occur without restrictions for specified transactions, typically categorized under current or capital accounts.
India has maintained full convertibility on the current account (covering trade in goods and services) since 1994. Capital account convertibility, which pertains to financial flows, is currently partial. This policy facilitates international trade, foreign investment, and overall integration with the global economy.
Incorrect Options
Option (1): Being able to convert rupee notes into gold refers to the gold standard, an international monetary system that is no longer in practice globally.
Option (2): Allowing the value of the rupee to be fixed by market forces describes a flexible or floating exchange rate regime, which is distinct from currency convertibility. Convertibility addresses the freedom of exchange, while market forces determine the exchange rate under a flexible system.
Option (4): Developing an international market for currencies in India pertains to the establishment and growth of financial infrastructure for foreign exchange trading within the country, rather than the fundamental concept of currency convertibility itself.