One strategy with profitenhancing appeal that a company can

One strategy with profit-enhancing appeal that a company can pursue to reduce its exposure to adverse exchange rate adjustments to the manufacturing costs of pairs shipped from a plant in one geographic region to distribution warehouses in a different region is to pass the cost of the adverse exchange rate adjustment along to purchasers of the company\'s footwear by raising the prices of all footwear sold in a geographic region by the full amount of any adverse exchange rate adjustment per pair that the company incurs in that region. build sufficient plant capacity in each of the four geographic regions to supply most/all of the pairs needed in that region and greatly reduce (or eliminate) the need to ship pairs to a distribution warehouse from a plant in a different geographic region-such a strategy also cuts a company\'s payments of import tariffs. build plants in geographic regions where there are adverse exchange rate cost adjustments and ship pairs from these plants to re

Solution

The question is about the strategy which will enhance the profits.

Option 1:

The option 1. is about passing the cost of adverse exchange rates to the purchasers. This will reduce the extra cost but not extra profits will be generated as the revenue obtained this way will be paid in the fulfilment of increased exchange rates. Hence, option 1 is wrong.

Option 3:

Building new plants will in the regions of favorable exchange rates will also not do any also not do any better good since the cost incurred in transferring the production plants and starting production will be more in that region. Hence, option 3 is wrong.

Option 4:

Ignoring the exchange rate will never help a company to make profits. It is because in such case the company will have to pay the increased taxes from their pocket which will only reduce the cost instead of increasing the profits. Hence, option 4 is wrong.

Option 5:

Lowering the rates in of the footwears which are impacted adversely by the exchange rates and raising the rates of footwears which are favored by the exchange rate adjustments by full amounts of changes will also not do any better. It is because, there may be chances that the revenue generated by the reduced-price footwears is more and vice versa. In such a case the company will end up in losses. Hence, option 5 is wrong.

Option 2:

Building sufficient plant capacity in all the geographic regions such that shipping needs are lowered as much as possible. This will help to reduce the tariff duties and hence will lead to increased profits via small modifications in the existing plant capacities. Hence, option 2 is the right answer.