Potential losses to foreign loss exposures caused usually by the host government or other political forces in the host country. Illustrations are confiscation of property, cancellation of import licenses, and kidnapping.
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UK: There is no single definition but usually means a risk that is subject to political decisions and therefore beyond the firm’s control. Political risk must be carefully distinguished from commercial risk (changes in production, prices, interest rates, currency rates, etc.). They fall into five groups: confiscation; expropriation and nationalisation; currency inconvertibility; contract frustration; and war and civil unrest. Insurance cover is available for each group with confiscation, expropriation and nationalisation being the most readily available and contract frustration being the most difficult risk to place. The Export Credit Guarantee Department has a vital role in the insurance of political risk but there is also private sector provision. See credit insurance; export credit; financial guarantee and overseas investment insurance.
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Unanticipated political events that disrupt the earnings or profit-making ability of an enterprise Nationalization and expropriation are examples.