Define the types of risk that are commonly referred to as political risk, and give some examples of them
What will be an ideal response?
Political risk can arise if the foreign subsidiary conducts its business in a politically unstable country. A change in a
country's political environment frequently brings a change in policies with respect to businessesNand especially with
respect to foreign businesses.
Some examples of political risk are as follows:
1. Expropriation of plants and equipment without compensation
2. Expropriation with minimal compensation that is below actual market value
3. Non-convertibility of the subsidiary's foreign earnings into the parent's currencyNthe problem of blocked funds
4. Substantial changes in tax rates
5. Governmental controls in the foreign country regarding the sale price of certain products, wages and
compensation paid to personnel, the hiring of personnel, transfer payments made to the parent, and local borrowing
6. Requirements regarding the local ownership of the business
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