Political risk significantly affects foreign investments as investors seek stable environments for their capital. High political risk, including factors like instability, corruption, and policy uncertainty, can deter investment as businesses fear loss of assets or untenable operational conditions. Companies often assess risk through evaluating the political landscape, including government policies and potential for conflict. A country’s ability to maintain law and order and fulfill contracts is critical; if the risk is perceived high, investors may seek opportunities in more stable regions despite potentially lower returns.