Assessing the political environment is an important part in any business decision. Laws and regulations passed by either local, regional and central government bodies can affect foreign firms' operations. Also, firms are comfortable assessing the political climates in their home countries. However, assessing the political climates in other countries is still problematic. Classification and description of political risks
When doing international business, the manager may face several types of financial risks. The major types of financial risks are commercial risks, political risks, exchange rate risks, and other such as inflation-related risks. Thus, political risks are non commercial risks. Political risks are any changes in the political environment that may adversely affect the value of a firm's business activities. Political risks may occur in any nation, but the risks vary considerably between countries. We may distinguish two types of classification of political risks. A classification based on the characteristic of political risks and a classification or categorization based on the local government actions or control. Classification based on the characteristics of political risks Characteristics refer to as the facts that are inherent to each political risk. In other terms, their uniqueness or what make them different from one another. There are three types of such characteristics: ownership risks, operating risks, and transfer risks. Ownership risk
In which the property of the firm is threatened through expropriation, confiscation or domestication. Ownership risk exposes property and life. The triad will be explained in the second classification.
Operating risk In which there is interference with the firm operations. The ongoing operations of the and/or the safety of its employees are threatened through changes in laws, environmental standards, tax codes, terrorism, armed insurrection or wars, and so forth. Transfer risk In which the government...
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