What is political risk? What is the relationship between political environment and political risk?
Answer: Investing overseas exposes a company to the risks that arise from the quirks of international politics or, as commonly called, political risk. Generally, political risk is the chance that political decisions, events, or conditions in a country will affect the business environment in ways that lead investors to (1) lose some or all of the value of their investment or (2) be forced to accept a lower than projected rate of return. Although political risks can occur in democratic as well as totalitarian political regimes, they tend to be more prevalent in totalitarian regimes.