Explanation:

Correct Option: (d) Explanation:  Statement 1 is incorrect: A fully convertible currency can lead to increase in burden of foreign debt as businesses can easily raise loan but they are prone to the risk of high repayments if the exchange rates become unfavorable.  Statement 2 is correct: India had moved towards a market determined exchange rate since 1993, after which the RBI had announced that India has become fully convertible on current account.  Statement 3 is correct: India still has many challenges to address before introducing a fully convertible capital account. High rates of in fl ation, NPAs, macroeconomic instability and fi scal burden are some of the cornerstones which cannot be left untouched if we want to capitalize upon the fruits of capital account convertibility. Before addressing these challenges, any step towards CAC would rather hit back onto our economy. Supplementary Notes Currency convertibility  Currency convertibility: it is a situation in which domestic currencies can be converted into foreign currency at prevailing exchange rate without government intervention, in order to make sale and purchases.  In India, 100% current account convertibility is allowed without government intervention but, there are partial restrictions on capital account convertibility like, limited FDI and FII in certain sectors of economy.  Capital account convertibility: it effectively means the freedom to conduct fi nancial transactions without any constraints.  India has allowed only partial convertibility of capital account with some limitations in form of restricted FDI and FII.