Explanation:

For the first time, the Union Budget for 1992-93 has made the Indian rupee partially convertible. This was an inevitable move for the expeditious integration of Indian economy with that of the world In order to face the serious current account deficit in the balance of payments, the Government of India introduced the partial convertibility of rupee from March 1. 1992.

• The exchange rate was earlier controlled by RBI for the conversion of Indian currency into foreign exchange.
• All the foreign exchange earned was to be sold to an authorized dealer.  
• One had to seek the permission of the central bank to purchase foreign exchange.
• The main purpose behind this was to utilize the foreign exchange earned by the residents as per the priorities fixed by the government.
• India is a fast developing country now and one of the most preferred countries for investment by foreigners.

India could not restrict its foreign trade as It needs to grow further. So

• the government has allowed the convertibility of rupee in a phased manner on current account transactions.
• But full convertibility of currency for capital account transactions is still a distant dream.

Important Points

• Convertibility of currency means when the currency of a country can be freely converted into the foreign exchange at the market-determined rate of exchange.
• The exchange rate is determined by the demand for and supply of a currency. 
• In general, the convertibility of rupee means that those who have a foreign exchange (e.g. US dollars, Pound Sterlings, etc.) can get them converted into rupees and vice-versa at the market-determined rate of exchange.
• The rupee is both convertibles on capital account and current account.

Hence option 3rd is correct.