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CFA Level I · CFA Level I Exam · Introduction to Geopolitics

Which of the following is the most appropriate way for an investor to monitor an evolving geopolitical risk?

Tracking indicators and updating scenario probabilities as new information arrives is most appropriate. Geopolitical conditions change quickly, so assessments must be refreshed continuously. An annual review or a fixed assumption until an event occurs would leave the investor relying on outdated estimates of likelihood and impact.

  1. AReview it once a year during the annual strategy meeting
  2. BTrack indicators and update scenario probabilities as new information arrivesCorrect
  3. CAssume the initial assessment stays valid until an event occurs

Explanation

Geopolitical situations change quickly, so analysts should follow indicators such as policy statements, troop movements or trade data and revise probabilities and impacts. Annual reviews or static assumptions leave the portfolio exposed to outdated assessments.

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