LM6: Introduction to Geopolitics

Question 1

What are the 4 types of county behavior’s and describe them?

Answer 1

Question 2

What are the 3 tools of Geopolitics?

Answer 2

National security tools: espionage, military
Economic tools: currency union, nationalization
Financial tools: currency markets, sanctions, capital controls

Question 3

What are the 4 types of geopolitical risk?

Answer 3

Event risk - Event risk is a type of geopolitical risk that revolves around set dates or date-driven milestones such as elections or political anniversaries
Exogenous risk - Exogenous risk is a type of geopolitical risk. It is a sudden or unanticipated risk that impacts a country’s cooperative stance or the ability of non-state actors to globalize.
Thematic risk - thematic risks are known risks that evolve and expand over a period of time. Climate change, cyber threats, and the ongoing threat of terrorism fall into this category.
Discrete risk – Risk affecting a specific company / industry

Question 4

What are the 3 considerations an investor should consider?

Answer 4

Likelihood of occurence
Speed (Velocity) of impact
Size and nature of impact

Question 5

What is Ricardian equivalence?

Answer 5

Ricardian equivalence - the idea that consumers anticipate the future so if they receive a tax cut financed by government borrowing, they anticipate future taxes will rise. Therefore, their lifetime income remains unchanged and so consumer spending remains unchanged.