ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Externally convertible currency relates to a term that is used to describe a currency that only allows foreigners to exchange the currency into other currencies without any limits. Some externally convertible currencies include the Australian dollar, Euro, and Hong Kong dollar.

Detailed explanation-2: -A currency is not convertible when both residents and nonresidents are prohibited from converting their holdings of that currency into another currency. The extent to which the reported consolidated results and balance sheets of a corporation are affected by fluctuations in foreign exchange values.

Detailed explanation-3: -And why aren’t all currencies convertible? A convertible currency, in simple terms, is a currency that can be bought or sold without government restrictions, as opposed to those that are tightly controlled by a central bank or other regulating authority.

Detailed explanation-4: -Understanding Non-Convertible Currency A non-convertible currency is one that is used primarily for domestic transactions and is not openly traded in the forex (FX) market. This is usually the result of government restrictions, which prevent it from being exchanged for foreign currencies.