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Government, Law and Political Risk in International Business - Coggle…
Government, Law and Political Risk in International Business
Political Risks
Political risks are the actions by groups of people or governments that have the potential to affect the immediate and/or long-term viability of a firm.
Systematic Risk: A risk that influences a large number of assets. An example is political events. It is virtually impossible to protect yourself against this type of risk.
Unsystematic Risk: Sometimes referred to as “specific risk.” It is risk that affects a very small number of assets. An example is news that affects a specific stock such as a sudden strike by employees.
Interest Rate Risk: A rise in interest rates during the term or debt securities hurts the performance of stocks and bonds.
Political Risk: This represents the financial risk that a country’s government will suddenly change its policies. A major reason of why Second and Third World countries lack foreign investment.
Market Risk: This is the most familiar of all risks. It is the day-to-day fluctuations in a stock’s price
Other types of Risks
Credit or Default Risk: This is the risk that a company or individual will be unable to pay the contractual interest or principal on its debt obligations.
Country Risk: This refers to the risk that a country will not be able to honor its financial commitments.
Foreign Exchange Risk: When investing in foreign countries, firms must consider the fact that currency exchange rates can change the price of the asset as well.
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The Legal Environment
A domestic firm must follow the laws and customs of its home country. An international business faces a more complex task: It must obey the laws not only of its home country but also of all the host countries in which it operates.
These laws determine the markets the firms serve, the cost of goods and/or services they offer, the price they charge, and costs for labor, raw materials, and technology.