Question : What is the term used to describe the risk that arises from changes in government regulations or policies affecting foreign exchange rates?
Option 1: Political risk
Option 2: Credit risk
Option 3: Market risk
Option 4: Interest rate risk
Correct Answer: Political risk
Solution : The correct answer is a) Political risk
Political risk refers to the uncertainty and potential negative impact on investments or business operations due to political actions, such as changes in government policies, regulations, or political instability. These actions can include imposing capital controls, implementing trade barriers, or altering exchange rate policies, which can directly affect foreign exchange rates and potentially disrupt international trade and investment flows.
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