Final answer:
When the domestic currency of a country appreciates, firms that source their components domestically will lose.
Step-by-step explanation:
The correct answer is option 2: lose.
When the domestic currency of a country appreciates, it becomes stronger relative to other currencies. This means that it takes less of the domestic currency to buy a unit of foreign currency. As a result, the cost of sourcing components from other countries increases for firms in that country. This makes it more expensive for these firms to source their components, leading to a decrease in profitability and potentially higher prices for consumers.
For example, if a company in the United States sources components domestically and the value of the U.S. dollar increases, making it stronger, the company will have to pay more U.S. dollars to buy the same amount of components. This will increase the costs for the company and potentially lead to lower profits or higher prices for consumers.