CRA Emerging & Geopolitical Risks 3 — Questions and Answers
Question 1: A company operating in a country with strict capital controls faces difficulty repatriating profits. This is best classified as:
- Sovereign risk
- Transfer and convertibility risk (Correct answer)
- Political violence risk
- Regulatory arbitrage risk
Correct answer: Transfer and convertibility risk
Transfer and convertibility risk arises when a government restricts or blocks the movement of funds across borders, preventing companies from repatriating earnings or repaying cross-border obligations.
Question 2: Which of the following geopolitical developments would most directly create commodity price risk for energy-importing nations?
- A trade dispute between two landlocked agricultural exporters
- Military conflict in a major oil-producing region (Correct answer)
- A banking crisis in a net energy exporter
- Imposition of tariffs on manufactured goods between large economies
Correct answer: Military conflict in a major oil-producing region
Military conflict in major oil-producing regions disrupts supply, directly causing oil price spikes that create significant energy cost risk for importing nations.
Question 3: The concept of 'friend-shoring' in supply chain risk management involves:
- Outsourcing to the lowest-cost global provider regardless of location
- Concentrating supply chains among geopolitically aligned partner nations (Correct answer)
- Establishing factories in neutral countries to avoid trade disputes
- Using financial derivatives to hedge geopolitical supply disruptions
Correct answer: Concentrating supply chains among geopolitically aligned partner nations
Friend-shoring is a strategy of concentrating trade and supply chain relationships among politically allied countries to reduce exposure to adversarial geopolitical relationships.
Question 4: A Certified Risk Analyst evaluating emerging market debt should consider 'debt distress' indicators, which include all of the following EXCEPT:
- External debt-to-GDP ratio above 60%
- Rising debt service-to-export ratio
- A country's bond yield spreads widening significantly
- A positive current account surplus with strong reserve coverage (Correct answer)
Correct answer: A positive current account surplus with strong reserve coverage
A positive current account surplus and strong reserve coverage are signs of financial resilience, not distress indicators—the other options are classic warning signs of emerging market debt vulnerability.
Question 5: Which organization publishes the annual Global Risks Report that is widely used as a reference for emerging risk identification?
- International Monetary Fund (IMF)
- World Economic Forum (WEF) (Correct answer)
- Bank for International Settlements (BIS)
- Organisation for Economic Co-operation and Development (OECD)
Correct answer: World Economic Forum (WEF)
The World Economic Forum publishes the annual Global Risks Report, which surveys global leaders to identify and rank the most critical emerging risks across economic, environmental, geopolitical, societal, and technological categories.
Question 6: Horizon scanning in the context of geopolitical risk management is best described as:
- Monitoring current geopolitical events in real time
- Systematically identifying distant or emerging signals that may evolve into future risks (Correct answer)
- Calculating the probability of known geopolitical events
- Reviewing historical geopolitical crises to benchmark current exposures
Correct answer: Systematically identifying distant or emerging signals that may evolve into future risks
Horizon scanning is a forward-looking process of identifying weak signals, trends, and drivers that could develop into significant risks or opportunities over the medium to long term.
Question 7: Economic sanctions imposed by a major power can create secondary risk for third-party companies through 'secondary sanctions,' which means:
- The sanctioned country retaliates with counter-sanctions on the imposing country
- Non-sanctioning country firms face penalties for doing business with sanctioned entities (Correct answer)
- Sanctions automatically expire after a secondary review period
- Multinational subsidiaries in third countries are exempt from parent-company sanctions
Correct answer: Non-sanctioning country firms face penalties for doing business with sanctioned entities
Secondary sanctions target companies from non-sanctioning countries that continue to do business with sanctioned entities, effectively coercing third parties to comply with the sanctioning country's policy.
CRA Emerging & Geopolitical Risks 3
A company operating in a country with strict capital controls faces difficulty repatriating profits.
This is best classified as: