Political Risk

In: Social Issues

Submitted By xfv253
Words 268
Pages 2
Over the last 15 years we have witnessed increasing globalization of world markets. Globalization is “the tendency of investment funds and businesses to move beyond domestic and national markets to other markets around the globe, thereby increasing the interconnectedness of different markets. Globalization has had the effect of markedly increasing not only international trade, but also cultural exchange (http://www.investopedia.com/terms/g/globalization.asp#ixzz1pfhwYx3N).”
Because of this worldwide phenomenon, the domain of finance looks very different today than it did ten years ago. In a globalized world comes an increased sensitivity to geopolitical risks. What is geopolitical risk? Geopolitical risk is “The risk that an investment's returns could suffer as a result of political changes or instability in a country (http://www.investopedia.com/terms/p/politicalrisk.asp#ixzz1pfaHX6vY).” Instability affecting investment returns could stem from a change in government, foreign policy makers, legislative bodies, military control, or outbreak of war. How does geopolitical risk affect us in our everyday lives? One example is the political turmoil currently in Iran. One article points out that “oil has jumped by 9.3 percent since January” as a result of a shortage speculation. The tendency of investment funds and businesses to move beyond domestic and national markets to other markets around the globe, thereby increasing the interconnectedness of different markets. Globalization has had the effect of markedly increasing not only international trade, but also cultural exchange (http://www.investopedia.com/terms/g/globalization.asp#ixzz1pfhwYx3N).” Political risk isn’t easy to manage. For instance, not every country that provide exports to the United States is an…...

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