The correct answer is option 3. In News • Following U.S. sanctions, Iran’s currency devalued sharply, as restrictions on oil exports and access to foreign reserves severely limited the country's ability to stabilize its economy. Explanation & Key Takeaways: • Sanctions cut off access to foreign exchange reserves, reduce trade inflows, and restrict international financial transactions, leading to currency depreciation. The Iranian rial's record decline is a direct result of these factors. • Hence, Statement I is correct. • Sanctions reduce a country’s ability to import goods and expand trade, as foreign nations may be restricted from engaging in transactions. Instead of stabilizing the currency, limited trade worsens economic conditions, leading to further depreciation. • Hence, Statement II is incorrect. Related Concepts: • Mechanism of Currency Depreciation under Sanctions: • Reduced foreign exchange inflows: Sanctions limit exports (e.g., oil for Iran), cutting the inflow of foreign currency. • Restricted banking access: International banks may be prohibited from dealing with sanctioned nations, further reducing liquidity. • Capital flight: Investors withdraw funds, worsening depreciation. • Examples of Sanction-Induced Currency Depreciation: • Iran (2024): Rial plunged to 850,000 per U.S. dollar following U.S. sanctions. • Russia (2022): Ruble initially collapsed after Western sanctions but later recovered through strict government intervention. • Venezuela (2019): Bolivar lost over 99% of its value due to sanctions and economic mismanagement.