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? ​

Devaluation is an official cut in the value of a currency under a fixed or managed peg, so the domestic currency buys fewer units of foreign currency. Only Statement 1 follows from it, and even that only as a direct price effect.

• Statement 1 is correct. A lower rupee price of exports makes Indian goods cheaper for foreign buyers, which improves price competitiveness.
• Statement 2 is wrong. Devaluation reduces the foreign value of the domestic currency. The opposite happens when a currency appreciates.
• Statement 3 is not necessarily true. The trade balance improves only if the Marshall-Lerner condition holds (the sum of export and import demand elasticities exceeds one). Even then, the J-curve effect means the balance may worsen for some months before it improves.

The core concept is the distinction between devaluation (a policy act under a fixed regime) and depreciation (a market-driven fall). For Mains GS-III, this links to exchange rate management, current account deficit, and why India's rupee movements are usually left to market forces rather than deliberate devaluation.

Trap: Aspirants treat the word "necessarily" loosely and pick statement 3 because a cheaper currency "obviously" helps exports and trade. The question asks for what must follow, not what usually follows.