Political risk can affect payments mainly due to what factor?

Political risk primarily affects payments due to changes in government policies. When a government alters its regulations, trade agreements, or monetary policies, it can have significant implications for cross-border payments, investment flows, and overall business operations. Such changes may lead to increased costs, restrictions on repatriation of funds, or even the nationalization of assets, which directly impacts how transactions are conducted and how secure they are perceived to be.

In contrast, technological advancements, inflation rates, and market demand are factors that influence the payments landscape but do not specifically pertain to political risk. Technology can improve transaction efficiency, inflation can erode purchasing power, and market demand affects pricing and sales, but these aspects are generally outcomes of economic conditions rather than direct consequences of political shifts. Thus, understanding the implications of government policy changes is crucial for businesses operating in or entering markets with varying degrees of political stability.