Investments and investor choices are significantly impacted by recessions. The functioning of enterprises across borders has been altered by market liberalization and rising globalization. An economic downturn in one nation may spread to another, impacting business activities throughout the globe. The COVID-19 epidemic and Brexit influenced businesses like TravelAction Inc. by causing volatility between the Euro and the US Dollar. Using an arbitrage hedging strategy is one way to cope with the challenging economic climate (Lei, 2023). By simultaneously purchasing and selling assets, the arbitrage hedging strategy seeks to profit from price differences in the financial markets (Ruf, 2013). This essay explains why TravelAction Inc. chose the arbitrage hedging strategy in the face of challenging economic circumstances.
The best course of action for the business is to implement an arbitrage hedging plan since it may assist it in reducing the risks associated with currency fluctuation and other market uncertainties, particularly in difficult economic times. In this scenario, the technique is used to purchase and sell linked assets at the same time, such as stocks, to balance the risks of one position with the gains or profits from the other (Lei, 2023). Through this, the company can significantly protect itself against currency rate fluctuations, allowing it to maintain profitability. The approach needs a critical comprehension of the market to act decisively and quickly to respond to changing market conditions (Lei, 2023). To properly apply the strategy and maximize advantages, it is always crucial to get help from experienced traders. An Arbitrage hedging strategy can be a very effective tool to protect the company against currency rate changes, thus helping it to maintain financial profitability and stability.
The other benefit of using the Arbitrage Hedging Strategy is that it may help the company protect its operations against currency rate changes. This strategy benefits the company since it can buy and sell related stocks and options in significantly different markets (Frongillo, 2022). The company can protect itself from currency rate fluctuations by doing this. For instance, in circumstances where the value of the Euro depreciates against the US Dollar, the strategy can be used by the company to buy Euro at the lowest possible prices in one market and thus sell them in another market. This is very helpful for the company in maintaining profit margins, thus protecting against currency rate fluctuations (Frongillo, 2022). Therefore, an Arbitrage hedging strategy can be a very effective tool to protect the company against currency rate changes, thus helping it to maintain financial profitability and stability.
TravelAtion Inc. can use an Arbitrage hedging strategy to lock its profits, especially during harsh economic conditions. The company can use this strategy to take advantage of the price discrepancies in the financial markets by simultaneously buying and selling related assets in significant markets. The company can profit from the price difference and lock them (Ma, 2022). on the same note, the strategy is beneficial against the different market uncertainties, protecting the company’s profits from the harsh effects of market risks (Ma, 2022). Therefore, an Arbitrage hedging strategy can help the company maintain financial stability and profitability, especially during harsh economic conditions.
In conclusion, using Arbitrage Hedging Strategy is a suitable approach for TravelAction Inc. for mitigating risks concerning currency fluctuations and other market uncertainties during harsh economic conditions. The strategy can allow the company to lock in profits, protect its operations against currency rate fluctuations, and maintain financial stability. However, maximizing the benefits of the strategy requires a comprehensive understanding of the market and experience from the more experienced traders. Finally, TravelAction should emphasize the implementation of the strategy, thus working towards reducing risks and ensuring sustainable growth during harsh economic conditions.
References
Frongillo, F. (2022). The impact of merger arbitrage on takeovers and the shortcut of insider trading. http://tesi.luiss.it/35430/1/731511_FRONGILLO_FEDERICA.pdf
Lei, T. (2023). Hedge Fund Strategy Performances during Corona Virus Disease2019. https://books.google.co.ke/books?hl=en&lr=&id=tISjEAAAQBAJ&oi=fnd&pg=PA290&dq=Arbitrage+hedging+strategy+to+lock+its+profits,+&ots=K_KYUAv7g4&sig=c3Xn_x_qS7YWAXgaKFuekGBbFxE&redir_esc=y#v=onepage&q=Arbitrage%20hedging%20strategy%20to%20lock%20its%20profits%2C&f=false
Ma, R. (2022). Hedge Fund Strategies Performance in Bad Market Condition Analysis. Highlights in Business, Economics and Management, 2, 188-195. https://drpress.org/ojs/index.php/HBEM/article/view/2360
Ruf, J. (2013). Hedging under arbitrage. Mathematical Finance: An International Journal of Mathematics, Statistics and Financial Economics, 23(2), 297-317. https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1467-9965.2011.00502.x?casa_token=e_mldCdPgCAAAAAA:NRhVhX5ILfbqcpfG0QNWDvCWUzfJbcCTsHLNB8GRvihezzO5cjWLZXSaFEhlJ8QP0Cr0zrGz-75FwuMV
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