There are two types of political risk insurance relating to currency risks. One deals with the inconvertibility of local currency into hard currency and the other addresses the inability to transfer hard currency out of the country. Currency inconvertibility and transfer risk policies apply to losses resulting from financial crises, hard currency shortages, exchange controls, or arbitrary political decisions by a foreign government.
This political risks coverage protects local currency dividends, debt service, fees, return of capital, or non-payment of trade receivables by a foreign government or private-sector buyer (assuming, in the case of a private-sector buyer, that sufficient local currency has been deposited in the buyer’s bank).
