Which risk involves political decisions, government actions, regulations, or geopolitical instability that may affect operations or profitability?

Which risk involves political decisions, government actions, regulations, or geopolitical instability that may affect operations or profitability?

• A. Operational Risk
• B. Political Risk
• C. Compliance Risk
• D. Market Risk

Answer: (B)

Political risk captures the uncertainty that comes from government actions and geopolitical events that can change the business environment and affect profitability. This includes changes in regulations, taxes, tariffs, licensing, or sanctions, as well as instability or conflict that disrupts operations or access to markets. Such factors can alter costs, timing, and the ability to operate in a country, which directly impacts profitability. Operational risk is about failures in internal processes, people, or systems, not external political decisions. Compliance risk is about staying within laws and regulations, but the core focus is on adherence rather than the broader political or geopolitical environment. Market risk deals with changes in prices or demand driven by market forces, not specifically political actions. Thus, the scenario described aligns best with political risk.

Political risk captures the uncertainty that comes from government actions and geopolitical events that can change the business environment and affect profitability. This includes changes in regulations, taxes, tariffs, licensing, or sanctions, as well as instability or conflict that disrupts operations or access to markets. Such factors can alter costs, timing, and the ability to operate in a country, which directly impacts profitability.

Operational risk is about failures in internal processes, people, or systems, not external political decisions. Compliance risk is about staying within laws and regulations, but the core focus is on adherence rather than the broader political or geopolitical environment. Market risk deals with changes in prices or demand driven by market forces, not specifically political actions. Thus, the scenario described aligns best with political risk.