Question

What factors would you consider in evaluating and measuring the political risk associated with making FDI in a foreign country? Please list at least three factors and briefly explain each factor

Answer 1

Political risks related to a foreign direct investment means risks related to political scenarios due to which the return can get minimised.

Three political risks could be as follows-

1. Political instability of a country- Countries having political stability are preferred while investment in different foreign countries and countries which have high political instability have higher risk exposure and hence, less preferred.

2 . Environmental and tax laws- Counties with liberal environmental laws and tax laws are preferred while investment into foreign countries as investors prefer less of litigation related issues.

3. Trade policies and local labour laws- Countries with liberal trade policies and local labour laws are preferred by investors for investment into foreign countries as investor people less of litigation related issues.

Investors always prefer investment into such countries where there is more of trade liberalization and trade policies are investment oriented so that provide with a booster to thesw foreign investors as the policies favours them.