Managing Risk in an Unstable Environment

Managing Risk in an Unstable Environment

Risk according to our textbook reports that “all interesting financial decisions involve risks as well as returns” (Higgins, 2012, p. 294). In the article by Bremmer he discusses the difference between a political risk and an economic risk. A Political risk, according to the author is "the impact of politics on markets." An economic risk is the financial conditions that could affect investment (Bremmer, 2005).

Evaluations should be done before trying to enter a new market. An agency or business should take in to consideration many factors that could delay or even prevent them from entering this area. For example, as mentioned political risk is extremely important because it can be affected and/or influenced by certain laws that have passed, popular movements and even the characteristics of its leaders. A company with exposure in foreign markets needs early, accurate information on political developments. Any or all of these factors can affect the overall “flavor” of the politics, can add stability or even destabilize a country. The significance of any risk will then depend on the conditions of the investment decision. Strategists should evaluate and analyze any potential risk and how to deal with it. By being vigilant they will be better equipped to understand, help minimize risks and seize opportunities all over the globe (Bremmer, 2005).

As I said this is very important to financial, business managers as well as investors and in this article there are some key points to remember. First, from a global market perspective everything is becoming more interdependent and increasingly interconnected with each other. One reason is if a major political aftermath happens it could impact businesses and people in those particular countries where the situations are occurring. These markets are so connected for example if something major happened to the Chinese economy it would be felt within hours around Europe, Russia and the...