ASSIGNMENT | Describe indicators of political risk.

Describe indicators of political risk. Examine current events and identify some of the political risks that multinational companies face in the world today.

SAMPLE SOLUTION

Political Risk

Political risks also known as geopolitical risks are the risk of market, financial, or personnel losses as a result of political disruptions or decisions. There are various political factors that contemporary businesses face that are likely to affect their operations, profitability, and continuity (McKellar, 2010). They include risks emanating from political decisions made by legislative leaders regarding taxes, trade tariffs, currency valuation, labor laws, market barriers, development priorities, terms of investment, wage levels, and environmental regulations (Lascu, 2008).  Similarly, non-economic dynamics can distress a business.  For instance, political disruptions such as coups, terrorism, political elections, corruption, riots, international wars, and even national elections that aim to change the ruling regime, can intensely upset businesses’ capacity to operate.

Indicators of Political Risk Expropriation or nationalization is the primary indicator and form of political risk in most countries. The practice involves taking of private property by the government for public use without the consent of the owner. This discourages local and international investors (Lascu, 2008). There are other forms and levels of political indicators that include trade and currency controls, regulatory restrictions, low economic performance, regular changes in labor or tax laws, political repression, and limitation of export processing zones to encourage additional local production.        Political risk can be evaluated from a firm-specific or country-specific perspective (McKellar, 2010). This involves assessing …