UPSC 2021: Consider the following statements : The effect of devaluation of a currency is that it necessarily 1, improves the competitiveness of the domestic exports in the foreign markets 2. increases the foreign value of domestic currency 3. improves the trade balance Which of the above statements is/are correct?

A devaluation lowers the external value of the home currency, making domestic goods cheaper abroad and automatically raising their price-competitiveness (Statement 1). It does not raise, but actually lowers, the foreign price of the domestic currency, so Statement 2 is wrong. Whether the trade balance improves depends on the Marshall-Lerner elasticity condition and is not automatic, so Statement 3 is not necessarily true. Hence only Statement 1 is correct (option a). ([iasexpress.net](https://www.iasexpress.net/submodules/4-3-1-price-vs-income-adjustments-under-fixed-exchange-rates-balance-of-payments-bop-adjustments/?utm_source=openai))