When the value of their collateral falls, due to a negative shock in one country, leveraged companies need to increase their reserves. Therefore, they sell part of their valuable holdings on the countries that are still unaffected by the initial shock. This mechanism propagates the shock to other economies. Another example of financial link is when open-end mutual funds foresee future redemptions after there is a shock in one country. Mutual funds need to raise cash and, consequently, they sell assets in third countries.
Real links are the fundamental economic relationship among economies.
These links have been usually associated with international trade. When two countries trade among themselves or if they compete in the same foreign markets, a devaluation of the exchange rate in one country deteriorates the other country's competitive advantage. As a consequence, both countries will likely end up devaluing their currencies to re-balance their external sectors. Other types of real links, like foreign direct investment across countries, may also be present. Political links are the political relationships among countries.