Title 2.5 Introduction to Geopolitics.pdf ✅

1. Reduction in energy costs due to displacement of gasoline cars is most likely a type of: A. event risk.  B. thematic risk. C. exogenous risk. Explanation Geopolitical risks Type Description Event risk Known event date, unknown event outcome (eg, political election, new legislation) Exogenous risk Unanticipated event (eg, sudden uprisings, impact from natural disasters) Thematic risk Known risks that evolve over time (eg, displacement of fuel vehicles, rise of political factions) Geopolitical risks can have major impacts on investment returns globally and can be identified as different risk types: event risk, exogenous risk, and thematic risk. Analysts often model such risks as a part of their investment decision-making process. Thematic risks arise from events that evolve over a long period of time, such as climate change, rising political trends, and technological innovation. For example, the reduction in energy costs due to the displacement of gasoline cars is a thematic risk. This phenomenon may be driven by the gradual passage of climate-friendly regulations and may negatively affect major oil-producing economies. Event risk describes the uncertain outcome of an event that will occur on a known date. For example, the date of a US presidential election is known, but the winner is unknown until the event occurs (Choice A). Exogenous risk describes sudden or unanticipated geopolitical risk. One example is the aftermath of a sudden natural disaster, such as the Mount St. Helens eruption in 1980, which caused significant environmental harm in parts of the US and Canada (Choice C). Things to remember: Geopolitical risks can be identified as different types: event risk, exogenous risk, and thematic risk. Event risk describes the uncertain outcome of a known event. Exogenous risk describes the risk from an unanticipated event. Thematic risk refers to risks that evolve over a long period of time. Describe geopolitical risk LOS Copyright © UWorld. Copyright CFA Institute. All rights reserved.
2. Which of the following is least likely a reason for a country to cooperate with its neighbors? The country lacks: A. economic resources.  B. trade protections for domestic producers. C. national security and defense capabilities. Explanation Motivations for political cooperation National security or military interest Protect against external threats Access vital resources that are scarce or unavailable domestically Economic interest Secure essential resources through trade Standardize international production and/or trading protocols to achieve fairness Cultural considerations Promote cultural exchange to strengthen international ties Political relationships among countries can be cooperative or noncooperative based on a country's national interest at any given time. A country's military, economic, and/or cultural aims can influence its degree of cooperation with other countries. For example, if a country lacks protections for its domestic producers from foreign competition, it may be motivated to cooperate less with foreign countries by imposing tariffs that favor domestic purchases over foreign purchases. (Choice A) A country lacking vital economic resources is likely to cooperate with other countries to gain access to such resources at favorable terms. (Choice C) A country lacking national security and defense capabilities is likely to cooperate with other countries to prevent and/or mitigate military threats. Things to remember: Political relationships among countries can be cooperative or noncooperative based on a country's national interest at any given time. A country's military, economic, and/or cultural aims can influence its degree of cooperation with other countries to promote its own wellbeing. Describe geopolitics from a cooperation versus competition perspective LOS Copyright © UWorld. Copyright CFA Institute. All rights reserved.
3. A country will most likely seek geopolitical cooperation if it: A. has a strong military supported by advanced technology. B. possesses a seaport that acts as a center for global trade.  C. engages in many large cross-border financial transactions. Explanation Motivations for political cooperation National security or military interest Protect against external threats Access vital resources that are scarce or unavailable domestically Economic interest Secure essential resources through trade Standardize international production and/or trading protocols to achieve fairness Cultural considerations Promote cultural exchange to strengthen international ties Political relationships among countries can be cooperative or noncooperative based on a country's national interest at any given time. A country's military, economic, and/or cultural aims can influence its degree of cooperation with other countries to promote its own wellbeing. Standardization is a form of cooperation that refers to standardizing protocols pertaining to cross-border trade and capital flows among countries. In this scenario, a country is likely to cooperate with other countries in following standardized protocols for large cross-border financial transactions. Doing so will help promote cross-border economic prosperity when all parties follow the same rules of engagement for conducting business. (Choice A) When considered by itself, having a strong military does not provide incentive for a country to cooperate more with others. However, a country with a weak military has incentive to cooperate with others to avoid the need for national defense. (Choice B) When considered by itself, a country with a seaport that facilitates global trade is not incentivized to cooperate with other countries. A landlocked country without international hubs has incentive to cooperate with other countries in order to obtain resources more easily. Things to remember: Standardization is a form of cooperation that refers to standardizing protocols pertaining to cross-border trade and capital flows among countries. Standardization helps promote cross-border economic prosperity when all parties follow the same rules of engagement for conducting business. Describe geopolitics from a cooperation versus competition perspective LOS Copyright © UWorld. Copyright CFA Institute. All rights reserved.
4. A country is experiencing economic difficulties due to persistent, large balance-of-trade deficits. The most appropriate organization to assist that country is the: A. World Bank Group (World Bank). B. World Trade Organization (WTO).  C. International Monetary Fund (IMF). Explanation The International Monetary Fund (IMF) engages in the broadest range of activities compared to the other international organizations. The IMF's responsibilities fall into four main categories: addressing international monetary problems; facilitating growth of trade and poverty reduction; supporting exchange rate stability; and lending foreign exchange to address balance of payments problems. IMF loans are temporary and are not considered foreign aid or a source of long-term funding. Loans are made only with adequate safeguards (ie, senior creditor status) and only after countries have filed a plan with the IMF to resolve their difficulties. (Choice A) The World Bank Group (World Bank) is primarily involved (through affiliate organizations) in long-term lending to facilitate economic development in developing countries. The World Bank also provides advice and analysis to foster economic and social improvements. It does not directly assist in resolving problems due to trade imbalances. (Choice B) The World Trade Organization (WTO) fosters global trade through a variety of means. It administers bilateral and multilateral trade agreements as well as related dispute resolution. The WTO seeks to reduce tariffs and non-tariff barriers to trade. It does not help resolve problems involving trade imbalances. Things to remember: The International Monetary Fund makes foreign exchange loans to countries experiencing balance of payments problems. IMF loans are extended under very strict guidelines and are intended as temporary funding, not as foreign aid or a source of long-term financing. Describe functions and objectives of the international organizations that facilitate trade, including the World Bank, the International Monetary Fund, and the World Trade Organization LOS Copyright © UWorld. Copyright CFA Institute. All rights reserved.