In an economy, to control a high balance of payment problem if government decided to reduce its currency value against globally accepted foreign…

Option 1 -> Appreciation means increase in currency value, which worsens balance of payments.

Option 2 -> Depreciation is market-driven decline in currency value in floating exchange rate systems.

Option 3 -> Dirty Floating is a system where exchange rates float with occasional government intervention.

Option 4 -> Devaluation is deliberate government action to reduce currency value under fixed/pegged exchange rate system.

---

Hence, Devaluation of Domestic Currency -> When a government officially decides to reduce the value of its domestic currency against foreign currencies, it is called devaluation. This is a deliberate policy tool used in fixed or pegged exchange rate systems to correct balance of payments deficits. Devaluation makes exports cheaper and imports expensive, improving trade balance. The key difference from depreciation is that devaluation is an official government decision, while depreciation is market-driven in floating exchange systems -> correct