Financial vs Economic Risk

There is not always a clear-cut difference because so much happening in economics is caused by political decisions. In practice the categorisation doesn’t matter as what is important is to have identified that a risk exists.

Political risks can often be separated from economic ones. For example, conflict/wars, change of a political party with different attitudes, Brexit.

Of course, as I said, political action often has economic consequences so that President Trump’s political decision to have 25% tariffs on steel makes exports of steel to the US less competitive economically.It is actually quite difficult to think of an economic risk that can not be traced back to politics. Something like the tsunami that devasted part of Japan some years ago hurt the economy without political intervention – but it’s origins were environmental.

For the purpose of the exam and having to categorise risks if the factor uses a economic term (such as tax, inflation, exchange rates, tariffs, boom/bust) then you are probably supposed to call it economic. Other effects (legal changes, international relations etc) are best-treated as political.