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.1 only
- B.1 and 2
- C.3 only
- D.2 and 3
Show answer
Devaluation makes domestic goods cheaper abroad, so export competitiveness improves, but it lowers the external value of the currency and does not necessarily improve the trade balance.
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