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.

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