The liability of the Pakistani firm has decreased due to the currency appreciation. When a company borrows in a foreign currency, the amount it owes is fixed in that currency. However, the amount it will cost in the company's home currency to repay the loan can change with exchange rate movements. If the home currency appreciates against the foreign currency, it will take fewer units of the home currency to buy the foreign currency needed to repay the loan. Therefore, the real value of the liability in terms of the home currency decreases. In this case, the Pakistani rupee has appreciated against the euro, meaning it takes fewer rupees to buy each euro. Therefore, it will cost Iron Cement Co. fewer rupees to buy the euros needed to repay the €200 million loan, effectively reducing the company's liability.

Choice A is incorrect. The liability of the Pakistani firm would not increase due to the currency appreciation. In fact, it's quite the opposite. When a country's currency appreciates against another, it means that its purchasing power has increased relative to the other currency. Therefore, in this case, as the Pakistani rupee has appreciated against the euro, Iron Cement Co. would need fewer rupees to buy euros for repaying their loan.

Choice C is incorrect. The liability of Iron Cement Co. does not remain unaffected due to currency appreciation. Currency exchange rates have a direct impact on liabilities denominated in foreign currencies because they determine how much of your home currency you need to repay those liabilities.

Choice D is incorrect. The liability of the Pakistani firm has not increased simply because the loan is denominated in Euros. The impact on the liability depends on the direction of the exchange rate movement. Since the Pakistani rupee has appreciated against the euro, the liability in rupee terms has actually decreased.