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?

1. Devaluation of a currency means lowering its value relative to other currencies. 2. Statement 1 is correct. Devaluation makes a country's goods cheaper for foreign buyers when priced in foreign currency. This improves the competitiveness of the domestic exports in the foreign markets, potentially leading to an increase in export volume. 3. Statement 2 is incorrect. Devaluation explicitly means a decrease, not an increase, in the foreign value of the domestic currency. For example, if the rupee is devalued against the dollar, more rupees are needed to buy one dollar. 4. Statement 3 is incorrect. While devaluation aims to make exports cheaper and imports more expensive, potentially improving the trade balance (exports minus imports), it does not *necessarily* achieve this. The actual effect depends on the price elasticity of demand for exports and imports (summarized by the Marshall-Lerner condition) and other factors like potential inflation triggered by higher import costs. It is not a guaranteed outcome. Therefore, only statement 1 is necessarily correct as a direct effect.