Step 1: Definition of External Fragmentation.
External fragmentation occurs when there is enough total free memory to satisfy a request, but the free memory is scattered in small, non-contiguous blocks. As a result, large memory requests cannot be satisfied, even though the total free memory is adequate.
Step 2: Explanation of other options.
- (2) This describes a scenario where the memory is contiguous, and hence internal fragmentation might occur, not external fragmentation.
- (3) External fragmentation doesn't occur when memory is empty because there are no fragmented blocks to manage.
- (4) External fragmentation only occurs when the available memory is fragmented into small holes, which doesn't always happen.
Step 3: Conclusion.
Thus, the correct answer is **(1)**.