Political Risk


DEFINITION of 'Political Risk'

The risk that an investment's returns could suffer as a result of political changes or instability in a country. Instability affecting investment returns could stem from a change in government, legislative bodies, other foreign policy makers, or military control.

Political risk is also known as "geopolitical risk," and becomes more of a factor as the time horizon of an investment gets longer.

BREAKING DOWN 'Political Risk'

Political risks are notoriously hard to quantify because there are limited sample sizes or case studies when discussing an individual nation. Some political risks can be insured against through international agencies or other government bodies.

The outcome of a political risk could drag down investment returns or even go so far as to remove the ability to withdraw capital from an investment.

  1. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. ...
  2. Systematic Risk

    The risk inherent to the entire market or entire market segment. ...
  3. Counterparty Risk

    The risk to each party of a contract that the counterparty will ...
  4. Price Risk

    The risk of a decline in the value of a security or a portfolio. ...
  5. Reinvestment Risk

    The risk that future coupons from a bond will not be reinvested ...
  6. Country Risk

    A collection of risks associated with investing in a foreign ...
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