LOOK AT THESE BEFORE EXAM
-
Actor ≠ only government. State actors control national security and resources; non-state actors like firms, NGOs, terrorist groups, and international organizations can still create geopolitical risk.
-
Cooperation does not mean friendship. It means flows increase: goods, services, capital, labor, information.
-
Non-cooperation does not always mean war. It can be tariffs, sanctions, capital controls, investment restrictions, nationalization, or currency restrictions.
-
Globalization and cooperation are different axes. A country can globalize but still dominate others. That is hegemony, not multilateralism. For example: USA
-
Autarky versus bilateralism trap: both dislike broad globalization, but bilateralism still cooperates selectively; autarky tries self-sufficiency.
-
Hegemony versus multilateralism trap: both engage globally, but hegemony controls; multilateralism uses shared rules. USA is usually hegemony, EU is multilateralism.
-
Countries are moving targets. CFA can test direction of movement, not just today’s category.
-
Interdependence cuts both ways. It reduces incentive to attack, but increases vulnerability if the relationship breaks.
-
IMF = monetary system. World Bank = development and poverty. WTO = trade rules.
-
Espionage is national security tool. Nationalisation is economic tool. Currency convertibility and foreign investment access are financial tools.
-
Event risk has a known date, for example, Brexit. Exogenous risk is sudden, for example, Ukraine Russia war. Thematic risk slowly builds, for example, climate change.
-
Do not forecast geopolitics with one answer. Prefers scenarios and signposts because risk does not develop linearly.
-
Assess geopolitical risk by likelihood, velocity, and impact. Velocity means how fast the damage hits, not how large it is.
INTRODUCTION TO GEOPOLITICS
-
Geopolitics means politics filtered through geography. Simple idea: where a country sits, what resources it has, who its neighbors are, and what routes it controls affect how it behaves.
-
Do not reduce geopolitics to “war risk.” CFA uses it much wider: trade, capital flows, migration, currency access, sanctions, alliances, institutions, regulations, and market volatility.
-
An actor is anyone who can affect political, economic, or financial outcomes. Think: governments, leaders, companies, international organizations, terrorist groups, activists, and large institutions.
-
State actors are governments, parliaments, presidents, prime ministers, monarchs, and political authorities. Their key power is control over territory, security, laws, and national resources.
-
Non-state actors are influential players that are not governments. Multinational companies, NGOs, terrorist groups, international bodies, and activist networks can still move markets.
-
The basic CFA lens is cooperation versus non-cooperation. Cooperation increases flows. Non-cooperation blocks flows. Flows of what: goods, services, capital, people, technology, and information.
-
National interest means what a country wants. It can be military security, economic growth, cultural influence, resource control, domestic stability, or political survival.
-
Think of national interest like a priority ladder. Survival and security sit at the top. Nice-to-have cultural or prestige goals sit lower. When pressure rises, countries protect the top of the ladder first.
-
Exam trap: countries may cooperate in one area and fight in another. A country can trade with another country while also restricting investment, spying, or fighting over technology.
-
Cooperation becomes easier when countries have complementary resources. One has energy, another has technology, another has capital. Trade becomes useful because each side wants what the other has.
-
Resource endowment means what a country naturally or historically has: oil, minerals, ports, land, labor, capital, technology, or strategic location.
-
Resource-rich countries may gain bargaining power, but they may also become exposed to commodity shocks, conflict, sanctions, or foreign interference.
-
Standardization means common rules. Same trade rules, payment rules, legal standards, or product standards reduce friction. Less friction means more cooperation.
-
Soft power means influence without force. Culture, education, media, language, values, diplomacy, and reputation can make other actors more willing to cooperate.
-
Institutions matter because they reduce uncertainty. If rules are trusted, countries and investors are more willing to commit capital for the long term.
-
Political cooperation has a cost. A country may gain trade access but lose some policy freedom. CFA likes this trade-off: cooperation gives benefits, but it can limit independence.
-
The power of the decision maker matters. A strong leader, coalition government, divided parliament, or unstable regime can change how quickly a geopolitical decision is made.
-
Political non-cooperation means the country chooses control over openness. It may use tariffs, quotas, sanctions, capital controls, nationalization, or military pressure.
GLOBALIZATION
-
Globalization means deeper cross-border connection: trade of goods and services, capital flows, currency exchange, migration, culture, technology, and information moving across borders.
-
Anti-globalization or nationalism means prioritizing domestic interests even if it hurts foreign partners. Memory hook: globalization opens the door; nationalism puts locks on the door.
-
Main benefit of globalization: higher profits. Companies can sell to more customers, produce where costs are lower, and source better inputs.
-
Second benefit: access to resources. Investors get more markets, companies get more suppliers, and countries get more capital and technology.
-
Third benefit: intrinsic gains. Consumers may get more choice, lower prices, better products, and higher quality of life.
-
First cost of globalization: gains are unequal. Some workers, regions, or industries lose even when the whole economy gains.
-
Second cost: interdependence. If one country breaks, supply chains elsewhere can break. Cheap global efficiency can become fragile global dependency.
-
Third cost: exploitation risk. Labor, environmental resources, and weaker legal systems may be abused when firms chase lower costs.
-
Rollback of globalization means the world moves from openness toward barriers. Watch for tariffs, quotas, sanctions, capital controls, immigration restrictions, and domestic-content rules.
-
Exam trap: globalization is not always “good” and nationalism is not always “bad” in CFA language. The exam tests trade-offs, not moral judgment.
INTERNATIONAL ORGANIZATIONS
-
The IMF protects the international monetary system. Think exchange rates, international payments, balance-of-payments stress, and crisis lending.
-
The World Bank focuses on developing countries, poverty reduction, and environmentally sound economic growth.
-
The WTO provides the legal and institutional base for global trade rules. Think cross-border trade disputes, trade discipline, and rule-based trade.
COUNTRY BEHAVIOR ARCHETYPES
-
Autarky means low globalization and low cooperation. The country tries to be self-sufficient and closed. Memory hook: “I do not need you.”
-
Hegemony means high globalization but low cooperation. The country engages globally, but tries to dominate or control others. Memory hook: “I trade with you, but on my terms.”
-
Multilateralism means high globalization and high cooperation. Countries use shared rules, institutions, and broad agreements. Memory hook: “Let us all play by one rulebook.”
-
Bilateralism means lower globalization but more selective cooperation. The country prefers one-to-one deals instead of broad global systems. Memory hook: “I choose my partners one by one.” For example: China and India.
-
Autarky and bilateralism both lean away from broad globalization, but autarky is more non-cooperative.
-
Hegemony and multilateralism both engage globally, but hegemony is controlling while multilateralism is rule-based and cooperative.
TOOLS OF GEOPOLITICS
-
National security tools affect people, borders, resources, or physical security. Examples: armed conflict, terrorism, espionage, military alliances.
-
Armed conflict is the extreme tool. It destroys infrastructure, reduces capital stock, triggers migration, damages labor supply, and can lower long-term growth.
-
Espionage is also national security, not economic. Spying feels “political,” but in this classification it is a national security tool.
-
Economic tools affect trade, production, ownership, and real resources. Examples: tariffs, quotas, export subsidies, domestic-content rules, sanctions, nationalization.
-
Nationalization means the state takes control of firms or industries. It is an economic tool because it changes ownership and control of productive assets.
-
Financial tools affect capital and money flows. Examples: free currency exchange, foreign investment access, capital controls, restrictions on local currency markets.
-
Easy matching: espionage = national security, nationalization = economic, free currency exchange across borders = financial.
GEOPOLITICAL RISK AND INVESTING
-
Geopolitical risk means tensions or actions between state and non-state actors that disturb normal international relations and affect investments.
-
Geopolitical risk can change comparative advantage. Safer countries may attract labor and capital; risky countries may lose both and face higher required returns.
-
Three risk types: event risk has known dates like elections or Brexit-style votes; exogenous risk is sudden like invasion or uprising; thematic risk builds slowly like cyber threats, climate risk, or terrorism.
-
Identify the actor, classify the behavior, identify the tool, classify the risk, estimate likelihood, velocity, and impact, then use scenarios and signposts because geopolitical risk rarely moves in a clean straight line.