The document outlines the concept and importance of political risk in international operations, detailing its types, impacts, and management strategies. Political risk refers to potential losses due to political instability or government changes in a country, which can affect investment returns and business operations. Key strategies for managing political risk include diversifying investments, maintaining flexibility, and monitoring political indicators.

1. BBA-FS (sem-6)
GUNI-VMPCMS
V. M Patel college of
management studies
Unit 2- Risk in International Operations
Political Risk – types , evaluation and management
Sr no. Name Enrollment No.
1. Dev . Mevara 21052321004
2. Karna . Thaker 21052321005
3. Mohit. Khatri. 21052321006

2. BBA-FS
GUNI-VMPCMS
V. M Patel college of
management studies
Topics to be covered
 What is Political Risk
 Impact Of Political Risk
 Types of Political Risk
 Evaluation of Political Risk
 How can we manage Political risk ?

3. BBA-FS
GUNI-VMPCMS
V. M Patel college of
management studies
What is Political Risk ?
Political risk is the risk an investment’s returns could suffer as a result of political
changes or instability in a country. Instability affecting could stem from a change
in government, legislative bodies, other foreign policymakers or military control.

4. BBA-FS
GUNI-VMPCMS
V. M Patel college of
management studies
Impact of Political Risk
Political instability is one of the major reasons for :
• Fall in equity prices and stock market crashes in any country.
• Fall in the value of a country’s currency in the international market.
• Widespread protests, unemployment, corruption, and other social evils.
• Widening gap between the rich and the poor and unstable operating conditions
for the business.
• Spiral-like situation with falling growth rate, falling production and sales,
falling foreign investment and equity markets, falling exports, and can lead to .
deflation and even recession.

5. BBA-FS
GUNI-VMPCMS
V. M Patel college of
management studies
Types of Political Risk
Businesses are affected by the decisions governments make that can
affect individual businesses, industries, and the economy. These
include taxes, spending, regulation, currency valuation, trade tariffs,
labor laws and environmental regulations.
Also, there are both macro- and micro- level political risks.

6. BBA-FS
GUNI-VMPCMS
V. M Patel college of
management studies
Macro-level political risks have similar impacts across all foreign actors in a given location.
Change to tax and labor laws
Regulatory restrictions on business
Currency and exchange controls
Terrorist Activity
Expropriation or government seizure of property
• War
Micro-level risks focus on sector, firm, or project specific risk
Specific regulations
Contract equipment Tax discrimination
Profit restrictions
• Violence

7. BBA-FS
GUNI-VMPCMS
V. M Patel college of
management studies
Micro-Level Political Risk
• Micro-level risks are risks that are more directly associated with
operations conducted by a firm.
• These risks usually affect specific companies or areas of the
economy.
• Tariff introductions, government regulations to specific
industries, or initiatives that are designed to favour local
businesses are all examples of micro-level political risk.

8. BBA-FS
GUNI-VMPCMS
V. M Patel college of
management studies
Evaluation of Political Risk
Here are some simplified points to consider when evaluating political risk in international
financial management:
1. Country Stability: Assess how stable the government and political system are in the
target country.
2. Rule of Law: Consider how well laws are enforced and if there’s a fair and transparent
legal system.
3. Corruption Levels: Look at the prevalence of corruption and how it might affect business
operations and investments.

9. BBA-FS
GUNI-VMPCMS
V. M Patel college of
management studies
4. Policy Predictability: Evaluate the predictability of government policies and regulations that
could impact investments.
5. Social Unrest: Take into account any social or political tensions that could escalate into
protests or unrest.
6. Exchange Rate Stability: Analyze the stability of the local currency and how it might
fluctuate due to political events.
By systematically evaluating these factors, international financial managers can
better understand and manage political risk to make informed investment decisions
and mitigate potential losses.

10. BBA-FS
GUNI-VMPCMS
V. M Patel college of
management studies
Management of Political Risk
Certainly! Here are some simplified points on managing political risk in international financial management:
1. Diversify Investments: Spread investments across different countries and industries to
minimize the impact of political instability in any single market.
2. Maintain Flexibility: Be prepared to adapt investment strategies and business plans in
response to changing political conditions.
3. Establish Contingency Plans: Develop contingency plans outlining actions to take in the
event of political crises or disruptions.
4. Build Relationships: Foster positive relationships with government officials, local
communities, and business partners to navigate political environments more effectively.

11. BBA-FS
GUNI-VMPCMS
V. M Patel college of
management studies
5. Monitor Indicators: Keep an eye on key political indicators such as election outcomes,
government policies, and social unrest to anticipate potential risks.
6. Review Contracts: Regularly review contracts and agreements to ensure they include
provisions for mitigating political risks, such as dispute resolution mechanisms.
7. Engage in Diplomacy: Engage in diplomatic efforts and advocacy to influence policies
that may impact investments positively.
By implementing these strategies, businesses can enhance their ability to manage
political risk and safeguard their international investments more effectively.

12. BBA-FS
GUNI-VMPCMS
V. M Patel college of
management studies
THANK YOU