Political risk is the possibility that political decisions or political or social events in a country will affect the business climate in such a way that investors lose a portion of their investment or expected return.
Adapted from Llewellyn Howell, Ph.D., The Handbook of Country and Political Risk Analysis, Third Edition, East Syracuse, New York, 2001.
Political risk is distinct from commercial risk, which refers to those risks arising in the normal course of business. Commercial risks include, but are not limited to: the prices of inputs and outputs; new technologies; legal risk; financial risks such as interest rate and foreign exchange risk, liquidity management and capital structure decisions; production risk; market demand and general changes in the overall competitive situation.