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Paul Tracy

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Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers. While there, Paul authored and edited thousands of financial research briefs, was published on Nasdaq. com, Yahoo Finance, and dozens of other prominent media outlets, and appeared as a guest expert at prominent radio shows and i...

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Updated September 30, 2020

What is Political Risk?

Political risk is the risk of financial, market or personnel losses because of political decisions or disruptions. Also known as "geopolitical risk."

Political Risk Examples

There are many environmental factors facing business. Besides market-based causes, business can be affected by political decisions or changes.

For example, political decisions by governmental leaders about taxes, currency valuation, trade tariffs or barriers, investment, wage levels, labor laws, environmental regulations and development priorities, can affect the business conditions and profitability. Similarly, non-economic factors can affect a business. For another example, political disruptions such as terrorism, riots, coups, civil wars, international wars, and even political elections that may change the ruling government, can dramatically affect businesses' ability to operate.

Political risks are faced equally by investors in international businesses and investment fund portfolios. These political risks are part of the estimation and disclosure of risk factors, usually found in a company or portfolio's prospectus

Why Political Risk Matters

Political risk can affect the operations and profitability of a business as directly and quickly as any financial, physical, or market risk factor.  

The impact of political risk is considered to be long-term because the risk rises over time, given the greater potential for events and changes over time. Although political risk is extremely difficult to quantify, companies and investors must examine and understand the potential for political risks by closely examining the location's history, political institutions, and political forces at work in the region.

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Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about Political Risk, then please ask Paul.

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