Which of these would by hurt by an appreciation of their domestic currency?

Question

BlackTom AI · Accepted Answer

An appreciation of the domestic currency reduces the domestic-currency value of payments or holdings denominated in foreign currency, so both types of firms described suffer when the home currency strengthens.

Relevant knowledge points and concepts
- Currency appreciation means one unit of domestic currency buys more foreign currency; conversely, one unit of foreign currency converts into fewer domestic currency units. 
- Firms that receive foreign-currency revenues or hold foreign assets convert those foreign-currency amounts into domestic currency for reporting and spending; a stronger home currency means those converted domestic values fall.

Step-by-step reasoning with calculations
1. Suppose the domestic currency is the dollar (USD) and the foreign currency is the euro (EUR). Initial exchange rate: 1 EUR = 1.20 USD.
2. A domestic company receives 100,000 EUR. At the initial rate this equals 100,000 × 1.20 = 120,000 USD.
3. If the domestic currency appreciates so the rate becomes 1 EUR = 1.00 USD, the same 100,000 EUR now converts to 100,000 × 1.00 = 100,000 USD. The company receives 20,000 USD less when converting — a clear loss.
4. For a domestic company holding overseas assets worth 1,000,000 EUR: initially valued at 1,000,000 × 1.20 = 1,200,000 USD. After appreciation to 1 EUR = 1.00 USD the asset is worth 1,000,000 USD — a 200,000 USD reduction in domestic-currency value.

Why the correct answer is correct
Both receiving foreign-currency payments and holding foreign assets expose firms to translation and transaction losses when the domestic currency strengthens; both categories therefore are hurt.

Why other options are incorrect
- “A domestic company receiving payment in a foreign currency” alone is true but incomplete: the company with overseas assets is also harmed. 
- “A domestic company with assets overseas” alone is likewise true but omits the receivable case. 
- “Neither of these” is wrong because both suffer reduced domestic-currency values upon appreciation.

Conclusion
Both of these is the correct choice, matching the provided answer.

Which of these would by hurt by an appreciation of their domestic currency?单项选择题

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