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    Question

    What is capital account

    convertibility?
    A The freedom to convert foreign currency into domestic currency. Correct Answer Incorrect Answer
    B The freedom to convert domestic currency into foreign currency without any restrictions or limitations. Correct Answer Incorrect Answer
    C The freedom to convert currency only for certain types of transactions. Correct Answer Incorrect Answer
    D The freedom to convert currency only for foreign direct investment. Correct Answer Incorrect Answer
    E The restriction on the conversion of domestic currency into foreign currency. Correct Answer Incorrect Answer

    Solution

    Capital account convertibility refers to the freedom to convert a country's domestic currency into foreign currency and vice versa, without any restrictions or limitations. It allows individuals and institutions to move their money across borders, invest in foreign assets, and take profits or dividends from those investments back to their home country. GFCs can play a significant role in facilitating capital account convertibility, i.e. the ability of individuals and institutions to freely move capital in and out of a country's financial system. Global financial centers play an important role in facilitating capital account convertibility, by providing a platform for cross-border financial transactions, developing financial infrastructure, encouraging foreign investment, promoting financial liberalization, and influencing international financial policy.

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