Which of the following best describes how economic risks differ from political risks?

• A. Economic risks are related to changes in tax policies, while political risks are related to changes in consumer preferences.
• B. Economic risks are only relevant in developing countries, whereas political risks affect all countries equally.
• C. Economic risks arise from changes in market conditions, such as inflation or recession, while political risks stem from government actions or instability.
• D. Economic risks are always controllable by firms, but political risks cannot be managed.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the definitions of economic risks and political risks. Economic risks refer to uncertainties arising from changes in the economic environment, such as inflation, recession, exchange rates, or market demand shifts.
2. Step 2: Recognize that political risks involve uncertainties due to government actions, political instability, changes in regulations, or policy shifts that can affect business operations.
3. Step 3: Analyze each option by comparing it to these definitions. For example, check if economic risks are indeed related to tax policies or market conditions, and if political risks relate to government actions or consumer preferences.
4. Step 4: Evaluate the scope of risks mentioned in the options, such as whether economic risks are only relevant in developing countries or if political risks affect all countries equally.
5. Step 5: Conclude by selecting the option that correctly distinguishes economic risks as arising from market conditions (like inflation or recession) and political risks as stemming from government actions or instability.