Political risk

Definition

Political risk is the potential for losses or other adverse impacts on business operations due to political instability or changes in government policy. It affects investments, corporate strategies, and financial returns in international markets.

5 Must Know Facts For Your Next Test

1. Political risk can include events such as expropriation, nationalization, and regulatory changes.
2. It is particularly significant for multinational corporations and investors with foreign assets.
3. Political risk assessment often involves analyzing the stability of a country's government and its policies.
4. Hedging strategies like political risk insurance can mitigate the impact of political risk.
5. Country risk ratings are tools used by investors to gauge the level of political risk in different nations.

Review Questions

• What types of events are considered political risks?
• Why is political risk particularly important for multinational corporations?
• How can investors mitigate the impact of political risks?

Related terms

Expropriation: The act of a government taking privately owned property against the wishes of the owners, usually with compensation.

Nationalization: The process by which a government takes control over a private industry or assets.

Country Risk Rating: A measure used by investors to assess the overall risk associated with investing in a particular country, including both economic and political risks.