The impact of geopolitical risks on foreign exchange markets: Evidence from the Russia–Ukraine war

We examine the relationship between geopolitical risks and foreign exchange markets using the
Russia–Ukraine conflict as a natural experiment. Our main findings indicate that, due to intensified geopolitical risks, the conflict had a negative effect on foreign exchange rates. This adverse
effect of geopolitical risks is more pronounced in countries with high reliance on Russian energy,
countries with a high level of economic policy uncertainty, countries with geographic proximity
to Russia and Ukraine, and countries where the degree of political rights, and freedom of political
expression is elevated. Our additional analyses suggest that the Russian invasion of Ukraine has
also negatively affected the return and volatility of the global equity markets.