Which class of risk relates to changes in laws or government policies?

The question pertains to the specific category of risk associated with changes in laws or government policies, which is best classified as political risk. Political risk encompasses the potential for losses or adverse impacts on an organization due to shifts in the political environment, including legislative changes, government instability, or policy alterations by public authorities. This type of risk is critical for businesses that operate in multiple jurisdictions or rely heavily on regulatory frameworks, as changes can significantly affect market conditions, operational procedures, and profitability.

Understanding political risk is vital for risk management, as it allows organizations to anticipate and prepare for potentially disruptive changes in the external environment. This proactive approach can help mitigate negative impacts, enhance strategic decision-making, and ultimately protect the organization’s interests.

The other options relate to different types of risk: economic risk generally pertains to changes in the economic environment that could affect financial performance; legal risk involves the risk of legal action or lawsuits; while social risk refers to changes in societal norms or consumer behavior that could impact a business. Each of these categories plays a significant role in risk management, but they do not focus specifically on changes in laws or government policies like political risk does.