Which of the following are the implications of full currency convertibility in the nation 1 It promp...........

Economic Affairs Balance of Payments

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Which of the following are the implications of full currency convertibility in the nation?

1.It prompts free exchange of currency and unlimited capital mobility.

2.It discourages import substitution as imports become lucrative.

3.It makes illegal remittance such as 'hawala money' and smuggling of gold less attractive.

Select the correct answer using the codes given below:

2 and 3 only

1 and 3 only

1 and 2 only

All of the above

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Explanation:

- Statement 1: Full currency convertibility enables the free exchange of currency and unlimited capital mobility by removing restrictions on foreign exchange, allowing residents and non-residents to freely exchange the local currency for foreign currencies.

- Statement 2: It discourages import substitution as imports become more attractive and lucrative due to the absence of exchange restrictions, potentially affecting domestic industries unable to compete with foreign goods.

- Statement 3: It makes illegal remittance channels like 'hawala' and smuggling of gold less attractive since legal avenues for currency exchange and movement are more accessible and regulated, reducing the need for underground activities.

- Answer: All of the above (Option 4). Each statement accurately reflects the broad economic implications of a nation adopting full currency convertibility.