What's the meaning of Capital account convertibility?
Answers
Answer:
Explanation:
Capital account convertibility is a feature of a nation's financial regime that centers on the ability to conduct transactions of local financial assets into foreign financial assets freely or at market determined exchange rates. It is sometimes referred to as capital asset liberation or CAC.
Capital Account Convertibility is not just the currency convertibility freedom, but more than that, it involves the freedom to invest in financial assets of other countries. The Committee on Capital Account Convertibility (1997, Chairman Dr S S Tarapore) in its report has given a working definition for the CAC which is as following. “CAC refers to the freedom to convert local financial assets into foreign financial assets and vice versa at market determined rates of exchange. It is associated with changes of ownership in foreign/domestic financial assets and liabilities and embodies the creation and liquidation of claims on, or by, the rest of the world.”
Capital account convertibility is thus the freedom of foreign investors to purchase Indian financial assets (shares, bonds etc.) and that of the domestic citizens to purchase foreign financial assets. It provides rights for firms and residents to freely buy into overseas assets such as equity, bonds, property and acquire ownership of overseas firms besides free repatriation of proceeds by foreign investors.
Why capital account convertibility?
Countries prefer capital account convertibility to promote the inflow of foreign capital. Despite the various risk associated with capital flows like fluctuations in various segments of the financial market, countries like India goes for it to get the advantage of having additional foreign capital.
Status of capital account convertibility in India :
There is partial capital account convertibility in India. Though tremendous capital account liberalisation measures were taken place since the launch of economic reforms, introduction of full capital account convertibility is yet to be implemented. In the case of current account there is full convertibility. Altogether, there is the rupee is partially convertible.
Answer:
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Explanation:
Capital Account Convertibility is not just the currency convertibility freedom, but more than that, it involves the freedom to invest in financial assets of other countries. The Committee on Capital Account Convertibility (1997, Chairman Dr S S Tarapore) in its report has given a working definition for the CAC which is as following. “CAC refers to the freedom to convert local financial assets into foreign financial assets and vice versa at market determined rates of exchange. It is associated with changes of ownership in foreign/domestic financial assets and liabilities and embodies the creation and liquidation of claims on, or by, the rest of the world.”