Module 16.1- Geopolitics

Question 1

What is the definition of geopolitics?

Answer 1

Geopolitics refers to interactions among nations, including the actions of state actors and nonstate actors.

Question 2

What does geopolitics study?

Answer 2

Geopolitics studies how geography affects interactions among nations and their citizens.

Question 3

What are potential areas for cooperation in geopolitics?

Answer 3

• Diplomatic matters
• Military matters
• Economic interactions
• Cultural interactions

Question 4

What economic factors are included in areas of cooperation?

Answer 4

• Freedom of movement across borders for goods, services, and capital
• Agreements to harmonize tariffs
• International standardization of rules
• Transfers of information and technology

Question 5

True or False: A country is either completely cooperative or completely noncooperative.

Answer 5

False

Question 6

What influences a country’s degree of cooperation?

Answer 6

• Current decision makers
• Length of its political cycle
• Domestic politics

Question 7

When does a country typically cooperate with others?

Answer 7

When doing so advances its national interests.

Question 8

How can a country’s national interests be analyzed?

Answer 8

As a hierarchy, with top priorities ensuring survival.

Question 9

What is a geophysical resource endowment?

Answer 9

The natural resources a country possesses that can influence its priorities.

Question 10

What role do nonstate actors play in geopolitics?

Answer 10

They seek to direct their resources to their highest-valued uses, which may involve cross-border cooperation.

Question 11

What is an example of standardization among countries?

Answer 11

International Financial Reporting Standards.

Question 12

What cultural factors can influence a country’s level of cooperation?

Answer 12

• Historical emigration patterns
• Shared language
• Formal and informal institutions

Question 13

What is soft power?

Answer 13

The ability to influence other countries without using or threatening force.

Question 14

What does globalization refer to?

Answer 14

The long-term trend toward worldwide integration of economic activity and cultures.

Question 15

How did economic openness change from the early 1970s to before the 2008 financial crisis?

Answer 15

Increased from about 25% to about 60%.

Question 16

What is nationalism in the context of globalization?

Answer 16

A nation pursuing its own economic interests independently of, or in competition with, other countries.

Question 17

What characterizes countries closer to the globalization end of the spectrum?

Answer 17

• Actively import and export goods and services
• Permit freer movement of capital
• Open to cultural interaction

Question 18

Define autarky.

Answer 18

A goal of national self-reliance, including producing most or all necessary goods and services domestically.

Question 19

What does hegemony refer to?

Answer 19

Countries that are open to globalization and can influence others without necessarily cooperating.

Question 20

What is bilateralism?

Answer 20

Cooperation between two countries.

Question 21

What is multilateralism?

Answer 21

Extensive cooperation and trade among many countries.

Question 22

What is regionalism in the context of multilateralism?

Answer 22

Cooperating multilaterally with nearby countries but less so with the world at large.

Question 23

How might nonstate actors differ from their governments regarding globalization?

Answer 23

They may be more oriented toward globalization, seeking opportunities outside their home country.

Question 24

Fill in the blank: Nonstate actors might buy and sell foreign securities, also known as _______.

Answer 24

portfolio investment flows

Question 25

Fill in the blank: Nonstate actors may own physical production capacity in other countries, referred to as _______.

Answer 25

foreign direct investment

Question 26

What is the main goal of the International Monetary Fund (IMF)?

Answer 26

Promoting international monetary cooperation ## Footnote Other goals include facilitating the expansion and balanced growth of international trade, promoting exchange stability, assisting in the establishment of a multilateral system of payments, and making resources available to members experiencing balance of payments difficulties.

Question 27

What are the two main institutions that make up the World Bank?

Answer 27

International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA) ## Footnote These institutions collaborate to fight poverty and promote sustainable development.

Question 28

What is the primary function of the World Trade Organization (WTO)?

Answer 28

To ensure that trade flows as smoothly, predictably, and freely as possible ## Footnote The WTO also handles trade disputes and ensures compliance with trade agreements.

Question 29

True or False: Geopolitical risk only refers to anticipated events.

Answer 29

False ## Footnote Geopolitical risk includes event risk, exogenous risk, and thematic risk.

Question 30

Define 'event risk' in the context of geopolitical risk.

Answer 30

Events about which we know the timing but not the outcome ## Footnote An example of event risk is national elections.

Question 31

What does 'exogenous risk' refer to?

Answer 31

Unanticipated events, such as outbreaks of war or rebellion ## Footnote This type of risk is unpredictable and can have significant impacts.

Question 32

Fill in the blank: Geopolitical risk affects investment values by increasing or decreasing the _______.

Answer 32

risk premium investors require to hold assets in a country or region.

Question 33

What factors should be considered to forecast the effect of geopolitical risk on investments?

Answer 33

* Probability (likelihood) * Magnitude of effects (impact) * Velocity of investment value reflection ## Footnote Each factor helps assess the potential impact of geopolitical events on investments.

Question 34

How can cooperation and globalization affect geopolitical risks?

Answer 34

Countries that are more cooperative and globalized tend to have less likelihood of some geopolitical risks ## Footnote However, they may face greater likelihood of risks such as supply chain disruptions.

Question 35

What are the three classifications of velocity of geopolitical risk?

Answer 35

* High velocity (short term) * Medium velocity * Low velocity (long term) ## Footnote Each classification indicates how quickly the effects of a risk might impact financial markets.

Question 36

What is 'black swan risk'?

Answer 36

The risk of low-likelihood exogenous events that have substantial short-term effects ## Footnote Investors with longer time horizons typically do not need to react to these events.

Question 37

What are the three broad categories of tools of geopolitics?

Answer 37

* National security * Economic * Financial ## Footnote These tools are used by state actors to advance interests globally.

Question 38

Give an example of a cooperative economic tool.

Answer 38

Free trade areas ## Footnote Other examples include common markets and economic and monetary unions.

Question 39

True or False: Financial tools of geopolitics only refer to currency exchange.

Answer 39

False ## Footnote Financial tools also include foreign investment and sanctions.

Question 40

What should investors consider when analyzing geopolitical risks?

Answer 40

Whether the impact of geopolitical risk is likely to be high or low ## Footnote Investors should focus on risks with potentially high impacts and assess their discrete or broad effects.

Question 41

What type of analysis can investors use to gauge potential effects of geopolitical risks?

Answer 41

Qualitative or quantitative scenario analysis ## Footnote This helps in understanding how geopolitical risks may affect investment portfolios.

Question 42

What are 'signposts' in the context of identifying geopolitical risks?

Answer 42

Data that can signal when the likelihood of an event is increasing or decreasing ## Footnote Examples include volatility indicators in financial markets.