Chartered Institute of Stockbrokers (CISI) Professional Practice Exam

Geopolitical risks can lead to market instability because they create uncertainty in the economic landscape. When political tensions arise, such as conflicts between nations, changes in government policy, or even terrorism, investors may react by withdrawing or reallocating their capital to safer assets or regions. This can cause fluctuations in stock prices, currency values, and commodity prices, creating a volatile investment environment.

Market participants are often wary of unpredictable events that can impact economic growth, regulatory environments, or operational risks in affected regions. Therefore, when geopolitical risks are heightened, they can prompt a negative sentiment, leading to decreased investments in riskier assets and increased demand for traditionally safer investments, like bonds or gold. This shift can significantly disrupt market stability and investor confidence, making it essential for investors to monitor geopolitical developments closely.