Geopolitical Risk refers to the potential impact of political and geographical events on global markets, economies, and investments. These risks arise from changes in government policies, international relations, wars, sanctions, trade disputes, or political instability in key regions. Such events can disrupt supply chains, affect commodity prices, and influence investor sentiment, leading to volatility in financial markets.

In simple terms, geopolitical risk measures how political developmentsóboth domestic and internationalócan affect economic growth, corporate profits, and investment performance. For example, rising tensions between major oil-producing nations can lead to fluctuations in crude oil prices, impacting sectors like energy and transportation. Similarly, trade wars or sanctions can influence currency values, export volumes, and stock market returns.

Types of Geopolitical Risks:

• Political Risk: Arises from changes in government policies, regulations, or leadership that affect business operations.
• Military Conflict Risk: Involves wars, border disputes, or terrorist activities disrupting trade and investment flows.
• Economic Sanctions and Trade Restrictions: Limitations imposed by one country on another can affect global supply chains and corporate earnings.

Investors and businesses often manage geopolitical risks through diversification, hedging strategies, and continuous monitoring of global developments. Multinational companies may spread their operations across regions to minimize exposure to any single countryís political situation.

In conclusion, understanding geopolitical risk is crucial for informed investment decisions and risk management. While such risks cannot be eliminated, awareness and strategic planning can help investors and businesses navigate global uncertainties and safeguard long-term financial stability.