A purely domestic firm may be affected by exchange rate fluctuations if it faces at least some foreign competition.

Question

Quizplus · Accepted Answer

Even if a firm is purely domestic, meaning it only operates in its home country, it can still be affected by exchange rate fluctuations if it faces competition from foreign companies. This is because changes in exchange rates can affect the prices that foreign competitors charge for their products or the cost of the inputs that the domestic firm uses to produce its own products. In this way, exchange rate fluctuations can impact the competitiveness and profitability of purely domestic firms that face foreign competition.

A Purely Domestic Firm May Be Affected by Exchange Rate