{"id":91856,"date":"2025-06-01T11:07:55","date_gmt":"2025-06-01T11:07:55","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=91856"},"modified":"2025-06-01T11:07:55","modified_gmt":"2025-06-01T11:07:55","slug":"consider-the-following-statements-the-effect-of-devaluation-of-a-curr","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-the-effect-of-devaluation-of-a-curr\/","title":{"rendered":"Consider the following statements: The effect of devaluation of a curr"},"content":{"rendered":"<p>Consider the following statements: The effect of devaluation of a currency is that it necessarily<\/p>\n<ul>\n<li>1. improves the competitiveness of the domestic exports in the foreign markets<\/li>\n<li>2. increases the foreign value of domestic currency<\/li>\n<li>3. improves the trade balance<\/li>\n<\/ul>\n<p>Which of the above statements is\/are correct?<\/p>\n<p>[amp_mcq option1=&#8221;1 only&#8221; option2=&#8221;1 and 2&#8243; option3=&#8221;3 only&#8221; option4=&#8221;2 and 3&#8243; correct=&#8221;option1&#8243;]<\/p>\n<div class=\"psc-box-pyq-exam-year-detail\">\n<div class=\"pyq-exam\">\n<div class=\"psc-heading\">This question was previously asked in<\/div>\n<div class=\"psc-title line-ellipsis\">UPSC IAS &#8211; 2021<\/div>\n<\/div>\n<div class=\"pyq-exam-psc-buttons\"><a href=\"\/pyq\/pyq-upsc-ias-2021.pdf\" target=\"_blank\" class=\"psc-pdf-button\" rel=\"noopener\">Download PDF<\/a><a href=\"\/pyq-upsc-ias-2021\" target=\"_blank\" class=\"psc-attempt-button\" rel=\"noopener\">Attempt Online<\/a><\/div>\n<\/div>\n<section id=\"pyq-correct-answer\">\nDevaluation of a currency means reducing its value relative to other currencies.<br \/>\n1. Improves the competitiveness of domestic exports: When a currency is devalued, foreign buyers need less of their currency to buy goods from the devaluing country. This makes the domestic country&#8217;s exports cheaper in foreign markets, thus increasing their price competitiveness. This statement is generally true, assuming other factors like quality and supply capacity remain constant and demand is price-sensitive.<br \/>\n2. Increases the foreign value of domestic currency: This is incorrect. Devaluation by definition means the domestic currency is now worth *less* in terms of foreign currencies.<br \/>\n3. Improves the trade balance: Devaluation makes exports cheaper and imports more expensive. The *aim* is to increase exports and decrease imports, thereby improving the trade balance (reducing deficit or increasing surplus). However, this outcome is not *necessary*. The effect depends on factors like the price elasticity of demand for exports and imports (Marshall-Lerner condition), the time lag for these effects to materialize (J-curve effect), supply side constraints, and potential retaliatory measures by trade partners. Therefore, it does not *necessarily* improve the trade balance.<br \/>\nOnly statement 1 is a necessary and direct consequence of devaluation in terms of price competitiveness.<br \/>\n<\/section>\n<section id=\"pyq-key-points\">\nDevaluation makes exports cheaper and imports more expensive in terms of domestic currency, directly impacting price competitiveness of exports. The impact on the trade balance is not guaranteed and depends on various economic factors.<br \/>\n<\/section>\n<section id=\"pyq-additional-information\">\nThe J-curve effect describes how a country&#8217;s trade balance may initially worsen following a devaluation or depreciation (because higher import prices outweigh increased export volumes) before eventually improving as trade volumes adjust.<br \/>\n<\/section>\n","protected":false},"excerpt":{"rendered":"<p>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? [amp_mcq option1=&#8221;1 only&#8221; option2=&#8221;1 and 2&#8243; option3=&#8221;3 only&#8221; &#8230; <\/p>\n<p class=\"read-more-container\"><a title=\"Consider the following statements: The effect of devaluation of a curr\" class=\"read-more button\" href=\"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-the-effect-of-devaluation-of-a-curr\/#more-91856\">Detailed Solution<span class=\"screen-reader-text\">Consider the following statements: The effect of devaluation of a curr<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1092],"tags":[1110,1226],"class_list":["post-91856","post","type-post","status-publish","format-standard","hentry","category-upsc-ias","tag-1110","tag-external-sector-of-economy","no-featured-image-padding"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v22.2 (Yoast SEO v23.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Consider the following statements: The effect of devaluation of a curr<\/title>\n<meta name=\"description\" content=\"Devaluation of a currency means reducing its value relative to other currencies. 1. Improves the competitiveness of domestic exports: When a currency is devalued, foreign buyers need less of their currency to buy goods from the devaluing country. This makes the domestic country&#039;s exports cheaper in foreign markets, thus increasing their price competitiveness. This statement is generally true, assuming other factors like quality and supply capacity remain constant and demand is price-sensitive. 2. Increases the foreign value of domestic currency: This is incorrect. Devaluation by definition means the domestic currency is now worth *less* in terms of foreign currencies. 3. Improves the trade balance: Devaluation makes exports cheaper and imports more expensive. The *aim* is to increase exports and decrease imports, thereby improving the trade balance (reducing deficit or increasing surplus). However, this outcome is not *necessary*. The effect depends on factors like the price elasticity of demand for exports and imports (Marshall-Lerner condition), the time lag for these effects to materialize (J-curve effect), supply side constraints, and potential retaliatory measures by trade partners. Therefore, it does not *necessarily* improve the trade balance. Only statement 1 is a necessary and direct consequence of devaluation in terms of price competitiveness. Devaluation makes exports cheaper and imports more expensive in terms of domestic currency, directly impacting price competitiveness of exports. The impact on the trade balance is not guaranteed and depends on various economic factors.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-the-effect-of-devaluation-of-a-curr\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Consider the following statements: The effect of devaluation of a curr\" \/>\n<meta property=\"og:description\" content=\"Devaluation of a currency means reducing its value relative to other currencies. 1. Improves the competitiveness of domestic exports: When a currency is devalued, foreign buyers need less of their currency to buy goods from the devaluing country. This makes the domestic country&#039;s exports cheaper in foreign markets, thus increasing their price competitiveness. This statement is generally true, assuming other factors like quality and supply capacity remain constant and demand is price-sensitive. 2. Increases the foreign value of domestic currency: This is incorrect. Devaluation by definition means the domestic currency is now worth *less* in terms of foreign currencies. 3. Improves the trade balance: Devaluation makes exports cheaper and imports more expensive. The *aim* is to increase exports and decrease imports, thereby improving the trade balance (reducing deficit or increasing surplus). However, this outcome is not *necessary*. The effect depends on factors like the price elasticity of demand for exports and imports (Marshall-Lerner condition), the time lag for these effects to materialize (J-curve effect), supply side constraints, and potential retaliatory measures by trade partners. Therefore, it does not *necessarily* improve the trade balance. Only statement 1 is a necessary and direct consequence of devaluation in terms of price competitiveness. Devaluation makes exports cheaper and imports more expensive in terms of domestic currency, directly impacting price competitiveness of exports. The impact on the trade balance is not guaranteed and depends on various economic factors.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-the-effect-of-devaluation-of-a-curr\/\" \/>\n<meta property=\"og:site_name\" content=\"MCQ and Quiz for Exams\" \/>\n<meta property=\"article:published_time\" content=\"2025-06-01T11:07:55+00:00\" \/>\n<meta name=\"author\" content=\"rawan239\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"rawan239\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"Consider the following statements: The effect of devaluation of a curr","description":"Devaluation of a currency means reducing its value relative to other currencies. 1. Improves the competitiveness of domestic exports: When a currency is devalued, foreign buyers need less of their currency to buy goods from the devaluing country. This makes the domestic country's exports cheaper in foreign markets, thus increasing their price competitiveness. This statement is generally true, assuming other factors like quality and supply capacity remain constant and demand is price-sensitive. 2. Increases the foreign value of domestic currency: This is incorrect. Devaluation by definition means the domestic currency is now worth *less* in terms of foreign currencies. 3. Improves the trade balance: Devaluation makes exports cheaper and imports more expensive. The *aim* is to increase exports and decrease imports, thereby improving the trade balance (reducing deficit or increasing surplus). However, this outcome is not *necessary*. The effect depends on factors like the price elasticity of demand for exports and imports (Marshall-Lerner condition), the time lag for these effects to materialize (J-curve effect), supply side constraints, and potential retaliatory measures by trade partners. Therefore, it does not *necessarily* improve the trade balance. Only statement 1 is a necessary and direct consequence of devaluation in terms of price competitiveness. Devaluation makes exports cheaper and imports more expensive in terms of domestic currency, directly impacting price competitiveness of exports. The impact on the trade balance is not guaranteed and depends on various economic factors.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-the-effect-of-devaluation-of-a-curr\/","og_locale":"en_US","og_type":"article","og_title":"Consider the following statements: The effect of devaluation of a curr","og_description":"Devaluation of a currency means reducing its value relative to other currencies. 1. Improves the competitiveness of domestic exports: When a currency is devalued, foreign buyers need less of their currency to buy goods from the devaluing country. This makes the domestic country's exports cheaper in foreign markets, thus increasing their price competitiveness. This statement is generally true, assuming other factors like quality and supply capacity remain constant and demand is price-sensitive. 2. Increases the foreign value of domestic currency: This is incorrect. Devaluation by definition means the domestic currency is now worth *less* in terms of foreign currencies. 3. Improves the trade balance: Devaluation makes exports cheaper and imports more expensive. The *aim* is to increase exports and decrease imports, thereby improving the trade balance (reducing deficit or increasing surplus). However, this outcome is not *necessary*. The effect depends on factors like the price elasticity of demand for exports and imports (Marshall-Lerner condition), the time lag for these effects to materialize (J-curve effect), supply side constraints, and potential retaliatory measures by trade partners. Therefore, it does not *necessarily* improve the trade balance. Only statement 1 is a necessary and direct consequence of devaluation in terms of price competitiveness. Devaluation makes exports cheaper and imports more expensive in terms of domestic currency, directly impacting price competitiveness of exports. The impact on the trade balance is not guaranteed and depends on various economic factors.","og_url":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-the-effect-of-devaluation-of-a-curr\/","og_site_name":"MCQ and Quiz for Exams","article_published_time":"2025-06-01T11:07:55+00:00","author":"rawan239","twitter_card":"summary_large_image","twitter_misc":{"Written by":"rawan239","Est. reading time":"2 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-the-effect-of-devaluation-of-a-curr\/","url":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-the-effect-of-devaluation-of-a-curr\/","name":"Consider the following statements: The effect of devaluation of a curr","isPartOf":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/#website"},"datePublished":"2025-06-01T11:07:55+00:00","dateModified":"2025-06-01T11:07:55+00:00","author":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/5807dafeb27d2ec82344d6cbd6c3d209"},"description":"Devaluation of a currency means reducing its value relative to other currencies. 1. Improves the competitiveness of domestic exports: When a currency is devalued, foreign buyers need less of their currency to buy goods from the devaluing country. This makes the domestic country's exports cheaper in foreign markets, thus increasing their price competitiveness. This statement is generally true, assuming other factors like quality and supply capacity remain constant and demand is price-sensitive. 2. Increases the foreign value of domestic currency: This is incorrect. Devaluation by definition means the domestic currency is now worth *less* in terms of foreign currencies. 3. Improves the trade balance: Devaluation makes exports cheaper and imports more expensive. The *aim* is to increase exports and decrease imports, thereby improving the trade balance (reducing deficit or increasing surplus). However, this outcome is not *necessary*. The effect depends on factors like the price elasticity of demand for exports and imports (Marshall-Lerner condition), the time lag for these effects to materialize (J-curve effect), supply side constraints, and potential retaliatory measures by trade partners. Therefore, it does not *necessarily* improve the trade balance. Only statement 1 is a necessary and direct consequence of devaluation in terms of price competitiveness. Devaluation makes exports cheaper and imports more expensive in terms of domestic currency, directly impacting price competitiveness of exports. The impact on the trade balance is not guaranteed and depends on various economic factors.","breadcrumb":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-the-effect-of-devaluation-of-a-curr\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-the-effect-of-devaluation-of-a-curr\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-the-effect-of-devaluation-of-a-curr\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/exam.pscnotes.com\/mcq\/"},{"@type":"ListItem","position":2,"name":"UPSC IAS","item":"https:\/\/exam.pscnotes.com\/mcq\/category\/upsc-ias\/"},{"@type":"ListItem","position":3,"name":"Consider the following statements: The effect of devaluation of a curr"}]},{"@type":"WebSite","@id":"https:\/\/exam.pscnotes.com\/mcq\/#website","url":"https:\/\/exam.pscnotes.com\/mcq\/","name":"MCQ and Quiz for Exams","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/exam.pscnotes.com\/mcq\/?s={search_term_string}"},"query-input":"required name=search_term_string"}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/5807dafeb27d2ec82344d6cbd6c3d209","name":"rawan239","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/761a7274f9cce048fa5b921221e7934820d74514df93ef195a9d22af0c1c9001?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/761a7274f9cce048fa5b921221e7934820d74514df93ef195a9d22af0c1c9001?s=96&d=mm&r=g","caption":"rawan239"},"sameAs":["https:\/\/exam.pscnotes.com"],"url":"https:\/\/exam.pscnotes.com\/mcq\/author\/rawan239\/"}]}},"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts\/91856","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/comments?post=91856"}],"version-history":[{"count":0,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts\/91856\/revisions"}],"wp:attachment":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/media?parent=91856"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/categories?post=91856"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/tags?post=91856"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}