Question

what are the five main types if political risk ( deacrive)? and how might each affect international business activities

Answer 1

Political Risk are as follows:

• Political Instability Corruption, war, riots,terrorism can create negative environment and affect the business badly in an economy. Example Pakistan has been disregarded by the nations as it promotes terrorism.
• Trade Barriers Barriers like tariffs can limit the growth of foreign trade. This make it difficult to survive in foreign markets.These are outcome of trade war and local politics. Example Trade war between China and US.
• Taxes Taxes can reduce the growth and profitability of business. These may increase the price of important assets. Complex tax rules make it difficult for small scale industries to survive as they have limited resources and knowledge. Example GST imposed in India has badly affected small businessmen and shopkeepers.
• Laws and Legislation New laws can affect the business badly. This may increase cost of operation, production and distribution. Example Government may decide that dying industries should install water treatment plant to prevent water pollution or else their licence will be cancelled.
• Economics . Sometimes political parties can influence the economic decisions in order to fulfill their selfish interests. Example Decreasing interest rates in order to encourage spending and win more votes even if it is against the prevailing economic condition at that time. Playing with interest rate affect asset prices and business costs.