Chapter 16: Introduction to Geopolitics

Question 1

Geopolitics

Answer 1

The study of how geography affects politics and international relations.

Question 2

State actors

Answer 2

Typically national governments, political organizations, or country leaders that exert authority over a country’s national security and resources.
Examples are The South African President, Sultan of Brunei, Malaysia’s Parliament, and the British Prime Minister.

Question 3

Non-state actors

Answer 3

Those that participate in global political, economic, or financial affairs but do not directly control national security or country resources. Examples are non-governmental organizations (NGOs), multinational companies, charities, and even influential individuals, such as business leaders or cultural icons.

Question 4

Cooperative country

Answer 4

A country that engages and reciprocates in rules standardization; harmonization of tariffs; international agreements on trade, immigration, or regulation; and allowing the free flow of information, including technology transfer.

Question 5

Non-cooperative country

Answer 5

A country with inconsistent and even arbitrary rules; restricted movement of goods, services, people, and capital across borders; retaliation; and limited technology exchange.

Question 6

Standardization

Answer 6

The process of creating protocols for the production, sale, transport, or use of a product or service occurring when relevant parties agree to follow these protocols together. It helps support expanded economic and financial activities, such as trade and capital flows that support higher economic growth and standards of living, across borders.

Question 7

Soft power

Answer 7

A means of influencing another country’s decisions without force or coercion which an be built over time through actions, such as cultural programs, advertisement, travel grants, and university exchange.

Question 8

Portfolio investment flows

Answer 8

Short-term investments in foreign assets, such as stocks or bonds.

Question 9

Foreign direct investments (FDI)

Answer 9

Long-term investments in the productive capacity of a foreign country.

Question 10

Autarky

Answer 10

Countries seeking political self-sufficiency with little or no external trade or finance. State-owned enterprises control strategic domestic industries.

Question 11

Hegemony

Answer 11

Countries that are regional or even global leaders and use their political or economic influence of others to control resources.

Question 12

Multilateralism

Answer 12

The conduct of countries who participate in mutually beneficial trade relationships and extensive rules harmonization. Private firms are fully integrated into global supply chains with multiple trade partners. Examples of multilateral countries include Germany and Singapore.

Question 13

Bilateralism

Answer 13

The conduct of political, economic, financial, or cultural cooperation between two countries. Bilateral countries may have relations with many different countries but in one-at-a-time agreements without multiple partners. Typically, countries exist on a spectrum between bilateralism and multilateralism.

Question 14

Regionalism

Answer 14

In between the two extremes of bilateralism and multilateralism. A group of countries cooperate with one another. Both bilateralism and regionalism can be conducted at the exclusion of other groups. For example, regional blocs may agree to provide trade benefits to one another and increase barriers for those outside of that group.

Question 15

Cabotage

Answer 15

The right to transport passengers or goods within a country by a foreign firm. Many countries—including those with multilateral trade agreements—impose restrictions on cabotage across transportation subsectors, meaning that shippers, airlines, and truck drivers are not allowed to transport goods and services within another country’s borders.

Question 16

Event risk

Answer 16

Risk that evolves around set dates, such as elections, new legislation, or other date-driven milestones, such as holidays or political anniversaries, known in advance. Example: Brexit referendum.

Question 17

Exogenous risk

Answer 17

A sudden or unanticipated risk that impacts either a country’s cooperative stance, the ability of non-state actors to globalize, or both. Examples include sudden uprisings, invasions, or the aftermath of natural disasters.

Question 18

Thematic risks

Answer 18

Known risks that evolve and expand over a period of time. Climate change, pattern migration, the rise of populist forces, and the ongoing threat of terrorism fall into this category.

Question 19

Velocity

Answer 19

The pace at which geopolitical risk impacts an investor portfolio.

Question 20

Black swan risk

Answer 20

An event that is rare and difficult to predict but has an important impact.

Question 21

Scenario analysis

Answer 21

A technique for exploring the performance and risk of investment strategies in different structural regimes.

Question 22

Groupthink

Answer 22

The practice of thinking or making decisions as a group in a way that discourages creativity or individual responsibility. For scenario analysis to be useful in portfolio management, teams must work hard to build creative processes, identify scenarios, track these scenarios, and assess the need for action on a regular cadence.

Question 23

Signpost

Answer 23

An indicator, market level, data piece, or event that signals a risk is becoming more or less likely. An analyst can think of signposts like a traffic light.