How Do Government Institutions Affect Stock Market Performance

As previously identified, there are also “non-legal/extra-governmental” political risks which could bring unexpected upheaval to foreign firms. Macro political risks such as the threat of violence, corruption, war or military coup, political instability and terrorism are all direct threats to foreign investors.

The political risk of investing in developed countries is roughly comparable with the risks of investing in the developing countries.

Political Risk- the unanticipated likelihood that a business’s foreign investment will be constrained by host government’s policy.

However, the investment was not without risks. There are four types of risks in international business called cross-culture risk, country risk, currency risk and commercial risk. Cross-cultural risk refers to a situation or event where a cultural miscommunication puts some human value at stake. Country risk describes the potentially adverse effects on company operations and profitability holes by developments in the political, legal, and economic environment in a foreign country. Currency risk is the risk of adverse unexpected fluctuations in exchange rates. Commercial risk refers to potential loss or failure from poorly developed or executed business strategies, tactics, or procedures (Boter & Wincent, 2010). Investment in Rulmenti Grei, Timken might face the salient risks of political and economic instability. Romania’s economic growth was slower, inflation was higher, and the labor force was more volatile. Furthermore, there might be a risk of re-nationalization. It is said that economic risk analysis tells corporate leaders the ability of a particular country to pay its debt while political risk analysis tells them whether that country will pay its debt. Political risk measures the stability of individual countries through the

Political risk is any governmental actions that diminish value of the firm operating with the boundary or influence of that government

The upcoming presidential election in the US has been making the stock market very volatile. The investors are scared that, if Donald Trump becomes the next president, it will affect the business investments, which in result may put the economy in a recession. His policies for deporting 11 million immigrants, building a wall and starting wars with other countries are some of the few reasons as to why many economists believe that the US economy would shrink by 1 trillion dollars over five years; also, they believe that his policies will destroy 4 million US jobs. This unpredictability of who is going to win the election is making the investors very cautious. This is referred to as the “fear gauge” on the Wall Street. The S&P 500, which is the

Political stability is best defined as the durability and integrity of a current government regime. Many countries in contemporary society make the transition towards democracy with the intention to become more politically stable in order to conduct their affairs. This trend of democratization often does result in lesser tension between government and those being governed. However, political unrest is still frequently experienced in some countries that have successfully established a democratic regime, while the same is virtually nonexistent in others. For that reason, political instability and its causes is often a controversial topic generally discussed by social scientists and scholars. While many factors have influence on the likelihood

Regulation of financial markets is very significant for investors in the stock markets, policy-makers, practitioners, and academicians who explore the topic very rigorously. This paper contributes to the field by examining the volatility among stock returns for firms in different segments of the financial services industry. My findings are useful to investors and have significant implication for policy-makers and federal regulators in the United States.

Economic stability is determined by the confidence of the majority population in the institutions established by the government. The economic and legal framework put in place should ensures strong property rights and provide credibility for people to invest in long term projects. Institutions are relevant only if they impose constraints to the behavior of actors. “They should diminish: i) the discretion of the government in the administration and implementation of policy objectives; and/or ii) the ability of the government to undertake unilateral changes in policies.” These conditions are similar to those stated by Levy and Spiller (1994) as the mechanisms that provide credibility and effectiveness to a generic regulatory framework. Those who have the utmost confidence in public institutions prefer flexibility as they believe they will pursue economic policies that are beneficial for the majority population at any given time. However, the politician who actually makes these policies prioritises their self preservation and maximises their own welfare function.

Understanding market risk is crucial in determining the factors that threaten one’s ability to attain returns from a particular project, single stock, or a portfolio. The impact of market risks is crucial to determining stability and the return on an investment. Many factors impact the market risk which effect both global and country economies. Market risk allows a firm to estimate the risk and return on projects or investments. Generally the riskier the project, the higher the returns. Market risk is predictable over time; although the predictions are not perfect, one can gain understanding into the effects the market will have on investment or how the investment will react to

When it comes to political factors, the government stability, taxation policy, social welfare policies and trae regulations shoule be considered.

It is important to indicate that a country risk analysis is not static. As factors of the analysis change within the country, the risk of investing in that country also changes. These analyses are fluid and are always fluctuating. Changes can be indicative of deliberate governmental action taken by the country while other times the risks may change because of an action other countries have taken. The purpose of this paper is to create a risk analysis for the Republic of Nicaragua and to explain the

Investing in emerging markets offer tempting advantages to investors. The volatile economies of countries considered to be in this category have a potential for extraordinary returns. A caveat to investors considering opportunities in emerging markets are the presence of unstable governments, the chance of nationalization, poor property rights protection, and large swings in prices. Emerging markets are far from a sure thing. But, despite high individual risk, emerging markets can reduce portfolio risk. The volatile economies of these countries have such low correlations compared to the domestic market that they actually provide the greatest degree of diversification.

Regulations imposed by the government in any economy determine the market efficiency and growth. Policies and laws governing the flow of goods and out flow determined the internal trade affairs. When the government formulates policies and regulations, which is the market conducive, efficiency is enhanced. In such instances, the outcomes of the market yields can be predicted. Such ability of the policies and regulations to enhance efficiency in the markets can be enabling the government to have prior arrangements and plans concerning future economic goals. On the other hand, as the governing body there is a need to establish the effectiveness of the current policies in enhancing marketing efficiency. However, there is a need to establish the criteria for determining the correctness and effectiveness of the regulations which are to be set. Governing body should intervene in the control of the market regulations though independent bodies and private sectors should be involved in such regulations formulations. Many economies, such the United states and United Kingdom, the government has the power to intervene in the market policies. When the market fails in such instances, the government is blamed for the failure. The modern economies advocates for more freedom of choice in the formulation of regulations of the markets. Others concentrate on the efficiency of the policies and regulations in the achievement of the market goals.

Political environment is significant to do business in other countries. There are different factors of political environment. These factors can influence the government decision making and other activities. For foreign investors every country set some rules and regulations. Investor need to maintain these rules and regulation to do business on certain country. Political factors can influence the government to change these regulations. So investors need to know the regulations and get the proper knowledge about political environment.