SIE practice questionmediumPolitical (Legislative) Risk
Political risk is BEST described as:
- AThe risk that government actions — such as new laws, regulations, or political instability — will negatively affect an investment's value✓ Correct answer
- BThe risk of losing money due to stock market volatility
- CThe risk that a company's management will make poor decisions
- DThe risk of interest rates changing
Explanation
Why A — The risk that government actions — such as new laws, regulations, or political instability — will negatively affect an investment's value
Political risk arises from government actions, regulatory changes, tax law changes, trade policies, nationalization of industries, or political instability that can affect investment values. It is particularly relevant for international investments (foreign government actions) but also applies domestically (e.g., new regulations affecting specific industries, tax law changes affecting certain investments).
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