What is political risk in the context of business investments?

Political risk in the context of business investments refers specifically to the potential actions taken by a host government that may negatively impact the value of investments made by foreign businesses or investors. This can include a range of scenarios, such as changes in laws or regulations, expropriation of assets, restrictions on capital movement, or political instability that might lead to civil unrest or conflicts.

The correct choice emphasizes that political risk is primarily about the external factors imposed by government actions that can jeopardize the profitability or viability of an investment. Understanding political risk is crucial for investors as it helps them assess the stability and reliability of the environment in which they are considering making investments.

The nuances of this risk factor illustrate why it is distinct from other risks, such as those associated with market performance or a company's decision to go public, as these involve different dimensions of investment risk.