Domestic governance policies: How efficient a country is in terms of its governmental practices. This will have a significant impact on whether or not companies will do business with a state. Several aspects: 1. Security: Can the state protect businesses? States engaged in civil wars, or states that have failed, are unable to provide security for a functioning market. 2. Predictable domestic policies – this is a measure of stability of government. Most argue that two party systems are the most successful in this regard. Multiparty systems often shift from left to right, changing domestic policies radically each time. One party systems tend to become stagnant and corrupt. This interacts with other economic policies – the idea of the “full faith and credit of the US” is tied to the fact that the US is generally seen as a stable political system. 3. Corruption – this is particularly applicable in legal systems – a legal system must be standardized and regularized.
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Foreign exchange market, United States dollar, exchange market interventions