Question

Explain why political risk factors should be incorporated when estimating country risk. Give examples of three variables that should be considered when estimating political risk.

Answer 1

Political risk are risk arises from the decision made by government of a country. Any chances of financial or personal losses due to political decision comes under political risk. While analyzing any project in different country then one has to incorporate political risk during estimating country risk because this politicla decision impact the portfolio of the country. If there is chances of any government change then one has to take care of it mainly democracy has more political risk than anarchy.

Variables tht should be considerd when estimating political risk:

1. Labor and wage law

2. Trade tariff and barriers as well other environmental regulations

3. Taxes and currency movements.