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Capital Account Convertibility in India. ... The issue of capital account convertibility
is one such where the nation has tread very cautiously. ...
Capital Account Convertibility. ... In this background we will try to discuss
Capital Account Convertibility and its way ahead for India. ...
Capital Account Convertibility In India. INTRODUCTION The objective of
this paper is to discuss the highly intensified debate on ...
... At the same time, these economies were following a policy of capital account
convertibility, which allowed firms and banks to borrow from abroad. ...
... rupees. India has current account convertibility and not capital account
convertibility. The rupee is not fully exchangeable. Meaning ...
Submitted by himanshu8970 on March 29, 2008
Category: Business
Words: 1667 | Pages: 7
Views: 74
Popularity Rank: 99,599
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Until 1997, Asia attracted almost half of total capital inflow to developing countries. The economies of Southeast Asia in particular maintained high interest rates attractive to foreign investors looking for a high rate of return. As a result the region's economies received a large inflow of hot money and experienced a dramatic run-up in asset prices. At the same time, the regional economies of Thailand, Malaysia, Indonesia, the Philippines, Singapore, and South Korea experienced high growth rates, 8-12% GDP, in the late 1980s and early 1990s.
At the time Thailand, Indonesia and South Korea had large private current account deficits and the maintenance of pegged exchange rates encouraged external borrowing and led to excessive exposure to foreign exchange risk in both the financial and corporate sectors. In the mid-1990s, two factors began to change their economic environment. As the U.S. economy recovered from a recession in the early 1990s, the U.S. Federal Reserve Bank under Alan Greenspan began to raise U.S. interest rates to head off inflation. This made the U.S. a more attractive investment destination relative to Southeast Asia, which had attracted hot money flows through high short-term interest rates, and raised the value of the U.S. dollar, to which many Southeast Asian nations' currencies were pegged, thus making their exports less competitive. At the same time, Southeast Asia's export growth slowed dramatically in the spring of 1996, deteriorating their current account position. The situation that followed is better known as South Asian crisis of 1997.
In this background we will try to discuss Capital Account Convertibility and its way ahead for India.
What is capital account convertibility?
In India, the foreign exchange transactions (transactions in dollars, pounds, or any other currency) are broadly classified into two accounts: current account transactions and capital account transactions. If...
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